Full text of "General Agreement on Tariffs and Trade (GATT) : intellectual property provisions : joint hearing before the Subcommittee on Intellectual Property and Judicial Administration of the Committee on the Judiciary, and the Subcommittee on Patents, Copyrights, and Trademarks of the Senate Committee on the Judiciary, One Hundred Third Congress, second session, on H.R. 4894 ... S. 2368 ... August 12, 1994"

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GENERAL AGREEMENT ON TARIFFS AND TRADE (GAIT):
INTELLECTUAL PROPERH PROVISIONS

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON INTELLECTUAL PROPERTY
AND JUDICAL ADMINISTRATION

OF THE

HOUSE COMMITTEE ON THE JUDICIAEY

AND THE

SUBCOMMITTEE ON
PATENTS, COPYRIGHTS AND TRADEMARKS

OF THE

SENATE COMMITTEE ON THE JUDICIARY

ONE HUNDRED THIRD CONGRESS

SECOND SESSION
ON

H.R 4894

GENERAL ^RE|:MENT ON TARIFFS AND TRADE COPYRIGHT

ACT OF 1994

AND

S. 2368

ECTS OF INTELLECTUAL PROPERTY RIGHTS
EMENTATION act of 1994

AUGUST 12, 1994

COMMITTEE ON THE JUDICIARY
1 Serial No. 90

SENATE COMMITTEE ON THE JUDICIARY
Serial No. J-103-77

Fhrinted for the use of the Commit tees on

the

MT! 2C03

BOSTON PUBLIC LIBRARY

bOV£R^l^•E^' r documents departme?

GENERAL AGREEMENT ON TARIFFS AND TRADE (GATI):
INTELLECTUAL PROPERH PROVISIONS

JOINT HEARING

BEFORE THE

SUBCOMMITTEE OX INTELLECTUAL PROPERTY
AND JUDICLVL ADMINISTRATION

OF THE

HOUSE COMMITTEE ON THE JUDICIARY

AND THE

SUBCOMMITTEE ON
PATENTS, COPTOIGHTS AND TRADE>L\RKS

OF THE

SENATE COMMITTEE ON THE JUDICIARY

ONE HUNDRED THIRD CONGRESS

SECOND SESSION
ON

H.R 4894

GENERAL AGREEMENT ON TARIFFS AND TRADE COPYRIGHT

ACT OF 1994

AND

S. 2368

TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS
IMPLEMENTATION ACT OF 1994

AUGUST 12, 1994

HOUSE COMMITTEE ON THE JUDICIARY

Serial No. 90

SENATE COMMITTEE ON THE JUDICIARY
Serial No. J-103-77

Printed for the use of the Committees on the Judiciary

U.S. GOVERNMENT PRINTING OFFICE
85-525 WASHINGTON : 1995

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington. DC 20402
ISBN 0-16-046931-7

COMMITTEE ON THE JUDICIARY

JACK BROOKS, Texas, Chairman

DON EDWARDS, California HAMILTON FISH, Jr., New York

JOHN CONYERS, Jr., Michigan CARLOS J. MOORHEAD, California

ROMANO L. MAZZOLI, Kentucky HENRY J. HYDE, IlUnois

WILLIAM J. HUGHES, New Jersey F. JAMES SENSENBRENNER, Jr.,

MIKE SYNAR, Oklahoma Wisconsin

PATRICL\ SCHROEDER, Colorado BILL McCOLLUM, Florida

DAN GLICKMAN, Kansas GEORGE W. GEKAS, Pennsylvania

BARNEY FRANK, Massachusetts HOWARD COBLE, North Carolina

CHARLES E. SCHUMER. New York LAMAR S. SMITH, Texas

HOWARD L. BERMAN, CaUfornia STEVEN SCHIFF, New Mexico

RICK BOUCHER, Virginia JIM RAMSTAD, Minnesota

JOHN BRYANT, Texas ELTON GALLEGLY, CaUfornia

GEORGE E. SANGMEISTER, Illinois CHARLES T. CANADY, Florida

CRAIG A. WASHINGTON, Texas BOB INGLIS, South CaroUna

JACK REED, Rhode Island BOB GOODLATTE, Virginia

JERROLD NADLER, New York

ROBERT C. SCOTT, Virginia

DAVID MANN, Ohio

MELVIN L. WATT, North CaroUna

XAVIER BECERRA, CaUfornia

Jonathan R. Yarowsky, General Counsel

Robert A. Lembo, Counsel /Administrator

Alan F. Coffey, Jr., Minority Chief Counsel

Subcommittee on Intellectual Property and Judicial Administration

WILLIAM J. HUGHES, New Jersey, Chairman

DON EDWARDS, CaUfornia CARLOS J. MOORHEAD, California

JOHN CONYERS, Jr., Michigan HOWARD COBLE, North CaroUna

ROMANO L. MAZZOLI, Kentucky HAMILTON FISH, Jr., New York

MIKE SYNAR, Oklahoma F. JAMES SENSENBRENNER, Jr.,

BARNEY FRANK, Massachusetts Wisconsin

HOWARD L. BERMAN, CaUfornia BILL McCOLLUM, Florida

JACK REED, Rhode Island STEVEN SCHIFF, New Mexico

XAVIER BECERRA, CaUfornia

Hayden W. Gregory, Counsel

Edward O'Connell, Assistant Counsel

WiLLLAM F. Patry, Assistant Counsel

Jarilyn Dupont, Assistant Counsel

Thomas E. Mooney, Minority Counsel

Joseph V. Wolfe, Minority Counsel

(II)

COMMITTEE ON THE JUDICIARY

JOSEPH R. BIDEN, Jr., Delaware, Chairman
EDWARD M. KENNEDY, Massachusetts ORRIN G. HATCH, Utah

HOWARD M. METZENBAUM, Ohio STROM THURMOND, South CaroUna

DENNIS DeCONCINI, Arizona ALAN K. SIMPSON, Wyoming

PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa

HOWELL HEFLIN, Alabama ARLEN SPECTER, Pennsylvania

PAUL SIMON, IlUnois HANK BROWN, Colorado

HERBERT KOHL, Wisconsin WILLL\M S. COHEN, Maine

DIANNE FEINSTEIN, CaUfomia LARRY PRESSLER, South Dakota

CAROL MOSELEY-BRAUN, Illinois

Cynthia C. Hogan, Chief Counsel

Catherine M. Russell, Staff Director

Sharon Prost, Minority Chief Counsel

Mark R. Disler, Minority Staff Director

Subcommittee on Patents, Copyrights and Trademarks

DENNIS DeCONCINI, Arizona, Chairman

EDWARD M. KENNEDY, Massachusetts ORRIN G. HATCH, Utah

PATRICK J. LEAHY, Vermont ALAN K. SIMPSON, Wyoming

HOWELL HEFLIN, Alabama CHARLES E. GRASSLEY, Iowa

DIANNE FEINSTEIN, California HANK BROWN, Colorado

Karen Robb, Chief Counsel

Janis Long, Counsel

Michael O'Leary, Counsel

Darrell Panethiere, Minority Chief Counsel

(III)

CONTENTS

HEARING DATE

Page

August 12, 1994 1

TEXTS OF BILLS

H.R. 4894 4

S. 2368 19

Discussion draft (2) — Trademark/Patent Provisions for General Agreement

on Tariffs and Trade Implementing Legislation 58

OPENING STATEMENT

Hughes, Hon. William J., a Representative in Congress from the State of
New Jersey, and chairman. Subcommittee on Intellectual Property and
Judicial Administration 1

WITNESSES

Addison, Kenneith F., Jr., president, Oklahoma Inventors Congress, on behalf
of the United Inventors Association of the United States of America, Tulsa,
OK 306

Bentley, Hon. Helen Delich, a Representative in Congress from the State
of Maryland 89

Herman, Jason S., chairman and chief executive officer. Recording Industry
Association of America 258

Gerson, Matt, vice president for congressional affairs. Motion Picture Associa-
tion of America, on behalf of Jack Valenti, president and chief executive
officer. Motion Picture Association of America 253

Karp, Irwin, counsel. Committee for Literary Studies, New York, NY 214

Lehman, Bruce A., Assistant Secretary of Commerce and Commissioner of
Patents and Trademarks, U.S. Department of Commerce 106

Mossinghoff, Gerald J., president. Pharmaceutical Research and Manufactur-
ers of America 294

Mmr, Robert E., general patent counsel. Caterpillar Inc., on behalf of the
National Association of Manufactxirers 325

Nelsen, Lita, director, Technology Licensing Office, Massachusetts Institute
of Technology, Cambridge, MA 302

Perlmutter, Shira, professor. Catholic University School of Law, Washington,
DC 187

Rohrabacher, Hon. Dana, a Representative in Congress from the State of
Cahfomia 97

Shapiro, Ira S., General Counsel, Office of the U.S. Trade Representative 130

Schroeder, Christopher, Counsel to the Assistant Attorney General, Office
of Legal Counsel, U.S. Department of Justice 145

Smith, Eric H., executive director and general counsel. International Intellec-
tual Property Alliance 240

Urbanski, Larry, chairman of the Fairness in Copyright Coalition, and presi-
dent, Moviecraft, Inc 272

Volokh, Eugene, acting professor of law. University of California at Los Ange-
les, Los Angeles, CA 173

(V)

Page

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Addison, Kenneith, F., Jr., president, Oklahoma Inventors Congress, on be-
half of the United Inventors Association of the United States of America,
Tulsa, OK: Prepared statement 308

Bentley, Hon. Helen Delich, a Representative in Congress from the State
of Maryland: Prepared statement 92

Herman, Jason S., chairman and chief executive officer. Recording Industry
Association of America: Prepared statement 261

DeConcini, Hon. Dennis, a Senator in Congress from the State of Arizona:
Prepared statement 81

Hatch, Hon. Orrin G., a Senator in Congress from the State of Utah: Pre-
pared statement 87

Karp, Irwin, counsel. Committee for Literary Studies, New York, NY:

Memorandum with attachment from Irwin Karp and John M. Kemochan,
Center for Law and the Arts, Berne 18 Study Project, Columbia Uni-
versity Law School, to Catherine Field, Esq., Office of L^.S. Trade
Representative and Christopher Meyer, Esq., and Michael Kepplinger,

Esq., Patent and Trademark Office, May 6, 1994 216

Prepared statement 225

Lehman, Bruce A., Assistant Secretary of Commerce and Commissioner of
Patents and Trademarks, U.S. Department of Commerce:

Prepared statement 109

Statement regarding protection of software-related inventions 165

Mossinghoff", Gerald J., president. Pharmaceutical Research and Manufactur-
ers of America: Prepared statement 295

Muri, Robert, general patent counsel. Caterpillar Inc., on behalf of the Na-
tional Association of Manufacturers: Prepared statement 327

Nelsen, Lita, director, Technology Licensing Office, Massachusetts Institute

of Technology, Cambridge, MA: Prepared statement 302

Perlmutter, Shira, professor. Catholic University School of Law, Washington,

DC: Prepared statement 190

Rohrabacher, Hon. Dana, a Representative in Congress from the State of
California: Prepared statement 100

Shapiro, Ira S., General Counsel, Office of the U.S. Trade Representative:
Prepared statement 133

Schroeder, Christopher, Counsel to the Assistant Attorney General, Office
of Legal Counsel, U.S. Department of Justice: Prepared statement 146

Smith, Eric H., executive director and general counsel. International Intellec-
tual Property Alliance: Prepared statement 243

Urbanski, Larry, chairman of the Fairness in Copyright Coalition, and presi-
dent, Moviecraft, Inc.: Prepared statement 275

Valenti, Jack, president and chief executive officer. Motion Picture Associa-
tion of America: Prepared statement 255

Volokh, Eugene, acting professor of law. University of California at Los Ange-
les, Los Angeles, CA: Prepared statement 176

APPENDIXES

Appendix 1. — Statement of Hon. Howard L. Berman, a Representative in
Congress from the State of California, August 12, 1994 339

Appendix 2. — Agreement on Trade-Related Aspects of Intellectual Property
Rights, Including Trade in Counterfeit Goods, submitted by Ira S. Shapiro,
General Counsel, Office of the U.S. Trade Representative 341

Appendix 3.^-Statement in opposition to patent law changes in the GATT
enabUng legislation (with attachments), submitted by Media Alert, August
11, 1994 372

Appendix 4. — Letter from Herbert C. Wamsley, executive director. Intellectual
Property Owners (with attachments), to Hon. William J. Hughes, chairman,
Subcommittee on Intellectual Property and Judicial Administration, and
Hon. Dennis DeConcini, chairman. Senate Subcommittee on Patents, Copy-
rights and Trademarks, August 17, 1994 375

Appendix 5. — Statement by Intellectual Property Owners (IPO), August 12,
1994 383

Appendix 6. — Statement by Intellectual Property Creators, August 12, 1994 ... 389

Appendix 7. — Statement by Genentech, Inc., August 12, 1994 403

Appendix 8. — ^Testimony of Jerome H. Lemelson, Lemelson National Program,

August 12, 1994 415

Page

Appendix 9.— Memorandum from Neil Turkewitz, Recording Industry Associa-
tion of America, Inc., to staff of the Senate Subcommittee on Patents,
Copyrights and Trademarks, and the House Subcommittee on Intellectual
Property and Judicial Administration, August 5, 1994 422

Appendix 10.— Testimony of Richard R. Mybeck, Esq., patent attorney, Scotts-

dale, AZ (with attachments), August 12, 1994 .^ ••• 427

Appendix 11.— Letter from Thomas E. Smith, chair, Amencan Bar Associa-
tion Section of Intellectual Property Law (with attachments), to Hon. Den-
nis DeConcini, September 15, 1994 "••"••• 446

Appendix 12.— Letter from Eric C. Woglom, chair, the Association of the
Bar of the City of New York, Committee on Patents (with attachments),
to Hon. William J. Hughes, chairman, August 9, 1994 456

Appendix 13.— Letter from Charles E. Ludlam, vice president for government
relations and Carl B. Feldbaum, president. Biotechnology Industry Orgam-
zation (BIO), August 12, 1994 ■■ •■••••• ••• 466

Appendix 14.— Letter from Tom Cannon, president, Supervend, Inc., to
Jarilyn Dupont, assistant counsel. Subcommittee on Intellectual Property
and Judicial Administration, undated 468

GENERAL AGREEMENT ON TARIFFS AND
TRADE (GATT): INTELLECTUAL PROPERTY
PROVISIONS

FRIDAY, AUGUST 12, 1994

House of Representatives, Subcommittee on Intel-
lectual Property and Judicial Administration,
Committee on the Judiciary, and Senate, Sub-
committee ON Patents, Copyrights and Trade-
marks, Committee on the Judiciary,

Washington, DC.
The subcommittees met, pursuant to notice, at 10 a.m., in room
2237, Rayburn House Office Building, Hon. William J. Hughes
(chairman of the Subcommittee on Intellectual Property and Judi-
cial Administration) presiding.

House Members present: Representatives William J. Hughes,
Don Edwards, Howard L. Berman, Jack Reed, Xavier Becerra, Car-
los J. Moorhead, and Howard Coble.

House staff present: Hayden Gregory, counsel; Jarilyn Dupont,
assistant counsel; William Patry, assistant counsel; Phyllis Hender-
son, secretary; Thomas Mooney, minority counsel; and Joseph
Wolfe, minority counsel.

Senate staff present: Karen Robb, chief counsel; Janis Long,
counsel; and Darrell Panethiere, minority counsel.

OPENING STATEMENT OF CHAIRMAN HUGHES

Mr. Hughes. The House Subcommittee on Intellectual Property
and Judicial Administration and the Senate Subcommittee on Pat-
ents, Copyrights and Trademarks will come to order.

Good morning. The Chair has received a request to cover this
hearing by cameras and still photography. In accordance with the
committee rules, permission will be granted, unless there is objec-
tion. Is there objection?

Hearing none, the permission is granted.

It is indeed a pleasure to hold a joint hearing with Senator
DeConcini's Subcommittee on Patents, Copyrights and Trade-
marks. The subject of today's hearing, the possible intellectual
property components of the General Agreement on Tariffs and
Trade, is of obvious importance to authors and inventors and to
those who distribute their works.

As U.S. authors and inventors increasingly rely on foreign mar-
kets, the need for adequate foreign protection also increases. By
virtue of the inclusion of the substantive provisions of the Berne
Convention in GATT, along with strong enforcement requirements

(1)

and dispute settlement, the U.S. authors will enjoy a high level of
protection in over 120 countries.

While I share the disappointment of many that the Uruguay
round did not achieve more, particularly in the area of national
treatment, we should not overlook the real gains the TRIPs agree-
ment achieves.

In examining the TRIPs text as signed in April of this year, the
USTR identified a number of areas that require changes in the
United States domestic law. In the area of patents, three changes
were identified: One, treatment of inventive activity occurring in a
WTO member country for purposes of establishing the date of in-
vention; two, including offer to sell and importation within the
grant of patent rights; and three, providing for a 20-year term of
protection measured from the date of filing.

I recognize that there are many concerns expressed about various
aspects of the patent law changes. And I think I have heard from
a lot of people. Next to the people I heard from about guns back
home, I suppose that runs second. Most of these concerns are over
the proposed 20-year term measured from date of application. Wit-
nesses will argue that the term of patent protection will be short-
ened by this provision.

The administration has made changes in its proposal to address
these particular concerns, changes which I believe are very positive
and which should go a long way toward alleviating their fear of a
shortened term. The creativity of our inventors must be encouraged
and rewarded, and I believe that is what will ultimately result
from these hearings and this process.

The U.S. Trade Representative only identified one mandatory
copyright change, repeal the October 1997 sunset on computer pro-
gram rental. At the same time, the USTR identified two areas in
copyright where changes are not mandatory, but in USTR's opin-
ion, desirable and compelling. These are providing retroactive pro-
tection to works of Berne and WTO members that have fallen into
the public domain in the United States for failure to comply with
our formality requirements, because of lack of national eligibility,
or in the case of sound recordings, because before February 15,
1972, there was no Federal protection.

I am sympathetic, very sympathetic, to those two proposals. I
fully appreciate the substantial benefits that U.S. authors will re-
ceive overseas. At the same time, I want to express clearly two con-
cerns: First, any discretionary amendments — and both of these are
discretionary — may be included in fast track only if there is unani-
mous agreement of the subcommittees here in the Congress. Pre-
cisely because of the nonamendable nature of fast track. Congress
and the executive branch have a gentlemen's agreement that dis-
cretionary items will be included only on those particular terms.

The merits of any discretionary proposal cannot outweigh this
agreement. If a proposal has sufficient merit, it will pass under the
regular order. I am confident that both retroactivity and boot-
legging have sufficient merit to pass by the regular process. I have,
frankly, been disappointed with the USTR's unwillingness to abide
by our gentlemen's agreement in the case of these two issues.

I have been left with the distinct impression that USTR intended
to put into the fast-track legislation provisions on retroactivity and

bootlegging regardless of my objections and possibly those of Sen-
ator DeConcini.

In the last few days, there may have been a change in this atti-
tude. I hope so, because there are very few substantive disagree-
ments between us, and I am confident those disagreements can be
resolved.

My second concern is with the constitutionality of particular ret-
roactive proposals. Notwithstanding the importance of retroactivity,
we must be careful to properly balance the legitimate interests of
authors and reliance partners — those who are lawfully using works
that are presently in the public domain.

This balancing is not only good policy, it is a constitutional re-
quirement. If we overreach, we will run the risk of violating the
takings clause, the result of which may be subjecting the U.S.
Treasury to compensation to reliance parties. I would, therefore,
urge my colleagues to look past the apple pie and American flag
aspects of this hearing and to take seriously some of the reserva-
tions about both Senator DeConcini's and my bill that you will hear
from witnesses today.

If we don't get it right, it may be difficult and expensive to undo
the damage. And that is precisely what we have to do. We have to
get it right the first time.

It looks to be a very interesting hearing, a lot of excellent wit-
nesses. The written testimony is great. It is voluminous. And the
Chair intends to insist upon the 5-minute rule so we can get to the
questions. We have read the statements, and we understand what
the parties have said. We would truly like to keep the comments
to 5 minutes.

[The bills, H.R. 4894, S. 2368, and discussion draft (2) follow:]

103d congress
2d Session

H. R. 4894

To prohibit unauthorized fixation of sound recordings and music videos of
Hve musical performances and provide copyright protection in restored
works, and for certain other purposes.

IN THE HOUSE OF REPRESENTATIVES

August 3, 1994

Mr. Hughes introduced the follo\\ing bill; which was referred to the
Committee on the Judiciary

A BILL

To prohibit unauthorized fucation of sound recordings and
music videos of hve musical performances and provide
copyright protection in restored works, and for certain
other purposes.

1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the "General Agreement

5 on Tariffs and Trade CopjTight Act of 1994".

6 SEC. 2. RENTAL RIGHTS IN COMPUTER PROGRAMS.

7 Section 804(c) of Public Law 101-650, 104 Stat.

8 5136, is amended by striking the first sentence.

1 TITLE I— FEDERAL ANTI-

2 BOOTLEG PROVISIONS

3 SEC. 101. SHORT TITLE.

4 This title may be cited as the "Federal Anti-Bootleg

5 Act of 1994".

6 SEC. 102. UNAUTHORIZED FIXATION OF AND TRAFFICKING

7 IN SOUND RECORDINGS AND MUSIC VIDEOS

8 OF LIVE MUSICAL PERFORMANCES.

9 Title 18, United States Code, is amended bj^ adding

10 the following:

1 1 "§ 2319A- Unauthorized fixation of and trafficking in

12 sound recordings and music videos of

13 live musical performances

14 "(a) Wlioever, without the consent of a featured per-

15 former, kno\vingl3^ and for purposes of commercial advan-

16 tage or private financial gain —

17 "(1) fixes the sounds or sounds and images of

18 a live musical performance in a copy or phonorecord,

19 or reproduces phonorecords or copies of such a per-

20 formance from an unauthorized fixation;

21 "(2) transmits or otherwise communicates to

22 the public the sounds or sounds and images of a live

23 musical performance; or

24 "(3) distributes or offers to distribute, sells or

25 offers to sell, rents or offers to rent, or traffics any

1 copy or phonorecord fixed without the consent of a

2 featured performer, regardless of whether the fixa-

3 tions occurred in the United States;

4 shall, upon judgment of conviction, be fined not more than

5 $250,000 or imprisoned for not more than 5 years, or

6 both.

7 "(b) When a person is convicted of a violation of sub-

8 section (a), the court shall in its judgment of conviction

9 order the forfeiture and destiniction of any copies of

10 phonorecords created in violation thereof, as well as any

1 1 plates, molds, matrices, masters, tapes, and film negatives

12 by means of which such copies or phonorecords may be

13 made. The court may also, in its discretion, order the for-

14 feiture and destruction of an}^ other equipment by means

15 of which such copies or phonorecords may be reproduced,

16 taking into account the nature, scope, and proportionality

17 of the use of the equipment in the offense.

18 "(c) If copies or phonorecords of sounds or sounds

19 and images of a live musical performance are fixed outside

20 of the United States ^^^thout the consent of a featured

21 performer, such copies or phonorecords are subject to sei-

22 zure and forfeiture in the same manner as property im-

23 ported in violation of the customs revenue laws. The Sec-

24 retary of the Treasurj^ and the United States Postal Serv-

25 ice shall, separately or jointlj^, make regulations for the

1 enforcement of the provisions of this subsection, including

2 regulations by which any featured performer may, upon

3 payment of a specified fee, be entitled to notification by

4 the United States Customs Service of the importation of

5 phonorecords or copies that appear to consist of unauthor-

6 ized fixations of the sounds or sounds and images of a

7 live musical performance.

8 "(d) As used in this section —

9 "(1) The terms 'copy', 'fixed', 'musical work',

10 'phonorecord', 'reproduce', 'sound recordings', and

11 'transmit' have the same meanings given such terms

12 in section 101 of title 17, United States Code.

13 "(2) The term 'traffic' means transport, trans-

14 fer, or otherwise dispose of, to another, as consider-

15 ation for anything of value, or make or obtain con-

16 trol of with intent to transport, transfer, or dispose

17 of.

18 "(e) This section shall apply to the folloAving acts that

19 occur 1 j'^ear after the entiy into force of the World Trade

20 Organization Agreement —

21 "(1) live musical performances fixed without

22 the consent of a featured performer;

23 "(2) distrilwitions, offers to sell, sales, offers to

24 sell, rentals, offers to rent, or trafficking in any copy

25 or phonorecord fixed witliout the consent of a fea-

1 tured performer, regardless of when the fixation oc-

2 curred; and

3 "(3) transmissions or other communications to

4 the pubUc of sounds or sounds and images of a Hve

5 musical performance fixed without consent of a fea-

6 tured performer.".

7 TITLE II— COPYRIGHT IN

8 RESTORED WORKS

9 SEC. 201. SHORT TITLE.

10 This title may be cited as the "Berne and GATT

1 1 Retroactivity Act of 1994".

12 SEC. 202. RESTORED WORKS.

13 (a) In General.— Section 104A of title 17, United

14 States Code, is amended to read as follows:

15 "SEC. 104A- COPYRIGHT EM RESTORED WORKS.

16 "(a) AuTOiMATic Protection and Term. —

17 "(1) Term. — Copyright subsists, in accordance

18 with this section, in restored works, and vests auto-

19 maticall}^ on the date of restoration.

20 "(A) Copyright in restored works pubhshed

21 or registered ^^^th the Copyright Office before

22 January 1, 1978, shall endure for a term of 75

23 years from the date of first publication or reg-

24 istration as the case may be.

1 "(B) Copyright in works created on or

2 after Januarj^ 1, 1978, shall endure for the

3 term of protection established in section 302.

4 "(2) Exception. — No work in which the copy-

5 right was ever owned or administered by the Alien

6 Property Custodian and in which the restored copy-

7 right would be owned by a government or instrumen-

8 talitj'^ thereof, shall be a restored work.

9 "(b) Ownership of Restored Copyright. — ^A re-

10 stored work vests initially in the author of the work as

1 1 determined according to the law of its source country.

12 "(c) Filing of Notice of Intent to Enforce

13 Restored Copyright Against Reliance Parties. —

14 Any person owning copjTight in a restored work or an ex-

15 elusive right therein may file with the CopjTight Office

16 a notice of intent to enforce that copjTight against reliance

17 parties. Acceptance of a notice by the CopjTight Office

18 shall not create a presumption of the validity of any of

19 the facts stated therein.

20 "(d) Remedies for Infringement of Restored

21 Copyrights. —

22 "(1) Enforcement of copyright in re-

23 stored works in the absence of a reliance

24 party. — As against any party who is not a reliance

25 party, the remedies provided in chapter 5 of this

1 title shall be available immediately upon restoration

2 ^\^th respect to any infringing act commenced on or

3 after the date of restoration.

4 "(2) Enforcement of copyright in re-

5 STORED WORKS AS AGAINST RELIANCE PARTIES. —

6 As against a reliance party, subject to paragraph

7 (3), the remedies provided in chapter 5 of this title

8 shall be available upon restoration —

9 "(A)(i) if the o\vner of the restored work

10 files with the CopjTight Office, between the

1 1 date of restoration and 24 months thereafter, a

12 notice of intent to enforce a restored work; and

13 "(ii) the act of infringement commenced on

14 or after 12 months from the date of publication

15 of the notice in the Federal Register;

16 "(B)(i) if the o\mer of the copyright in the

17 restored work or an exclusive right therein

18 sei-ves upon that reliance party a notice of in-

19 tent to enforce a restored work; and

20 "(ii) the act of infringement commenced

21 prior to receipt of the notice;

22 "(C) if copies of a restored work are made

23 after publication of the notice of intent in the

24 Federal Register; or

1 "(D) in the case of a particular reliance

2 party, after receipt of a notice of intent to en-

3 force the restored work.

4 "(3) Commencement op infringement for

5 reliance parties. — For purposes of section 412,

6 in the case of reliance parties, infringement shall be

7 deemed to have commenced prior to registration

8 when acts \vhich would have constituted infringe-

9 ment were committed prior to the date of the res-

10 toration and continued after such date.

11 "(e) Notices of Intent to Enforce a Restored

12 Copyright. —

13 "(1) Notices of intent filed with the

14 copyright office. — (A)(i) Notices of intent filed

15 with the Copyright Office to enforce a restored work

16 shall be signed bj^ the owner of the copjTight or the

17 owner of the exclusive right filing the notice and

18 shall identify the title of the restored work. If the

19 notice is signed by an agent, the agency relationship

20 must have been constituted in a \vriting signed by

21 the o\vner of the restored work or the owner of the

22 exclusive right therein prior to the filing of the no-

23 tice. The notice may contain any other information

24 specified in regulations established by the Register

25 of Copyrights pursuant to this section.

1 "(ii) If a restored work has no formal title, it

2 shall be described in the notice of intent in detail

3 sufficient to aid in its identification. Minor errors or

4 omissions may be corrected after the period estab-

5 lished in subsection (d)(2)(A) and shall be published

6 by the Register of Copyrights in the Federal Reg-

7 ister pursuant to subparagraph (B).

8 "(B)(i) The Register of CopjTights shall publish

9 in the Federal Register, commencing not later than

10 4 months after the date of the Agreement on Trade-

1 1 Related Aspects of Intellectual Property of the Gen-

12 eral Agreement on Tariffs and Trade becomes effec-

13 tive with respect to the United States and every 4

14 months thereafter, lists identifying restored works

15 and the OAvnership thereof if a notice of intent to en-

16 force a restored work has been filed.

17 "(ii) Not less than 1 list containing all notices

18 of intent to enforce a restored work filed with the

19 Cop3Tight Office shall be maintained in the Public

20 Information Office of the CopjTight Office and shall

21 be available for inspection and copying during regu-

22 lar business hours pursuant to sections 705 and

23 708.

24 ''(C) The Register of Copyiights is authorized

25 to fL\ reasonable fees based on the costs of receipt,

1 processing, recording, and publication of notices of

2 intent to enforce a restored work.

3 "(D) (i) Not later than 30 days after the date

4 the Agreement on Trade-Related Aspects of Intellec-

5 tual Property of the General Agreement on Tariffs

6 and Trade becomes effective with respect to the

7 United States, the Copyi-ight Office shall establish

8 and publish in the Federal Register regulations gov-

9 erning the filing under this subsection of notices of

10 intent to enforce a restored work.

11 "(ii) Such regulations shall permit owners of re-

12 stored works to simultaneouslj^ obtain registration

13 for a claim of copjTight in the restored work.

14 "(2) Notices of intent served on a reli-

15 ance party. —

16 "(A) Notices of the intent to enforce a re-

17 stored work ma}'^ be served bj'^ the copyright

18 o\vner of the restored work or bj' the OAvner of

19 any exclusive right therein on a reliance party.

20 "(B) Such notice shall identify the restored

21 work and the use to which the o\vner objects

22 and shall include an address and telephone

23 number at which the reliance party may contact

24 the o^^^lcr.

1 "(f) Immunity From Warranty and Related Li-

2 ABILITY. — All individual who warranted, promised, or

3 guaranteed that a work that such individual created did

4 not violate 1 of the exclusive rights granted in section 106,

5 shall not be liable for legal, equitable, arbitral, or adminis-

6 trative relief if the warranty, promise, or guarantee is

7 breached by virtue of the restoration of copyright under

8 this section.

9 "(g) Definitions. — For purposes of this section and

10 section 109(a):

11 "(1) The term 'date of adherence' means the

12 earlier of the dates upon which a foreign country

13 that is not a member of the Berne Union or the

14 World Trade Organization, as of the date of the en-

15 actment of the General Agi-eement on Tariffs and

16 Trade Intellectual Property Act of 1994, becomes a

17 member of the Berne Union or the World Trade Or-

18 ganization.

19 "(2) The term 'date of restoration' of a re-

20 stored copjTight means —

21 "(A) the date the Agi-eement on Trade-Re-

22 lated Aspects of Intellectual Property of the

23 General Agi-eement on Tariffs and Trade be-

24 comes effective ^^^th respect to the United

1 States, if the work is a restored work on such

2 date; or

3 "(B) the date of adherence.

4 "(3) The term 'ehgible country' means a coun-

5 tr}'^, other than the United States, which, on the date

6 that cop^Tight is restored under the provisions of

7 this section, has joined the World Trade Organiza-

8 tion or adhered to the Berne Convention for the

9 Protection of Literarj,'^ and Ai'tistic Works.

10 "(4) The term 'rehance party' means any per-
il son who, prior to the date the Agi'eement on Trade-

12 Related Aspects of Intellectual Propertj'^ of the Gen-

13 eral Agi-eement on Tariffs and Trade becomes effec-

14 tive with respect to the United States, or who, prior

15 to the date of adherence of a source country which

16 became an eligible countr}^ after the date of the en-

17 actment of such Act —

18 "(A) engaged in acts which would have vio-

19 lated section 106 if the restored work had been

20 subject to cop^Tight protection, and who, after

21 the date the Agreement on Trade-Related As-

22 pects of Intellectual Propert}'^ of the General

23 Agreement on Tariffs and Trade becomes effec-

24 tive Avith respect to the United States, or after

16 V

1 the date of adherence, continued to engage in

2 such acts; or

3 "(B) made substantial monetary invest-

4 ments in a creation of a work which incor-

5 porates material portions of a restored work.

6 "(5) The term 'restored work' means an origi-

7 nal work of authorship that —

8 "(A) is protected under subsection (a);

9 "(B) is not in the pubhc domain in its

10 source countiy;

1 1 "(C) is in the pubhc domain in the United

12 States due to —

13 "(i) noncomphanee with formahties

14 imposed at an}' time by United States

15 cop^Tight law, including failure of renewal,

16 lack of proper notice, or failure to comply

17 with anj'^ manufacturing requirement; or

18 "(ii) lack of subject matter protection

19 in the case of sound recordings fixed before

20 Febmaiy 15, 1972; and

21 "(D) has not less than 1 author who was,

22 at the time the work was created, a national or

23 domiciliaiy of an eligible country', and if pub-

24 lished, was first published in an eligible country

25 but not published in the United States during

1 the 30-day period following publication in such

2 eligible country.

3 "(6) The term 'source country' of a restored

4 work means —

5 "(A) a country other than the United

6 States;

7 "(B) in the case of an unpublished work —

8 "(i) the eligible country in which the
B author is a national or domiciliary, or, if a

10 restored work has more than 1 author, the

11 majority of foreign authors are nationals

12 or domiciliaries of such eligible countries;

13 or

14 "(ii) if the majority of authors are not

15 foreign, the source countrj'^ shall be the

16 countrA', other than the United States,

17 which has the most significant contacts

18 with the work; and

19 "(C) in the case of a published work, the

20 eligible countrj^ in which the work is first pub-

21 lished, or if the restored work is published on

22 the same daj' in 2 or more eligible countries,

23 the soui'ce countiy shall be the country, other

24 than the United States, which has the most sig-

25 nificant contacts with the work.".

1 (b) Limitation.— Section 109(a) of title 17, United

2 States Code, is amended by adding at the end the foUow-

3 ing:

4 "(e) the sale or other disposition without the author-

5 ization of the o\vner of a restored work of copies or

6 phonorecords manufactured before the date of restoration

7 of works in which copyright has been restored under sec-

8 tion 104A may be sold or otherwise disposed of only dur-

9 ing the period specified in section 104A(d)(3), and after

10 such period, only as part of a sale or disposition of not

1 1 more than 1 copy or phonorecord at a time.".

103d congress
2d Session

S. 2368

To implement the intellectual property right provisions of the Uruguay Round
of the Greneral Agreement on Tariffs and Trade, and for other purposes.

IN THE SENATE OF THE UNITED STATES

August 5, 1994

Mr. DeCokcini introduced the followng bill; which was read t\nee and
referred to the Committee on the Judiciary

A BILL

To implement the intellectual property right provisions of
the Uruguay Round of the General Agreement on Tariffs
and Trade, and for other purposes.

1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the "Trade-Related Aspects

5 of Intellectual Property Rights Implementation Act of

6 1994".

7 SEC. 2. RENTAL RIGHTS IN COMPUTER PROGRAMS.

8 Section 804(c) of the Computer Software Rental

9 Amendments Act of 1990 (Public Law 101-650; 104 Stat.
10 5089, 5136) is amended by striking out the first sentence.

20
2

1 SEC. 3. CREATION AND TRAFFICKING IN BOOTLEG SOUND

2 RECORDINGS PROHmiTED.

3 (a) In General. — Chapter 113 of title 18, United

4 States Code, is amended by inserting after section 2319

5 the following new section:

6 **§ 2319a. Creation of and traffic in bootleg sound re-

7 cordings prohibited

8 "(a) Whoever, willfully and for purposes of commer-

9 cial advantage or private financial gain, without the con-

10 sent of a performer or a performer's agent —

11 "(1) fixes or causes to be fixed in a sound re-

12 cording;

13 "(2) broadcasts, transmits, or otherwise com-

14 municates to the public or causes to be so broadcast,

15 transmitted, or otherwise communicated, the sounds

16 of a live performance; or

17 "(3) reproduces, distributes, sells, rents, offers

18 for sale or rent, transports, broadcasts, transmits, or

19 otherwise communicates to the public or possesses,

20 for the purpose of —

21 "(A) creating any article in violation of

22 paragraph (1); or

23 "(B) fixing the sounds therein,

24 shall, upon judgment of conviction, be fined not more than

25 $250,000 or imprisoned for not more than 5 years, or

26 both.

1 "(b) When any person is convicted of any violation

2 of subsection (a), the court in its judgment of conviction

3 shall, in addition to the penalty therein prescribed, order

4 the forfeiture, destruction, or other disposition of the ap-

5 plicable articles, implements, devices, and equipment as

6 required under section 4 (b) and (d) of the Intellectual

7 Property Rights General Agreement on Tariffs and Trade

8 Implementation Act of 1994.

9 "(c) The provisions of this section do not preempt

10 any State statute or civil or criminal cause of action aris-

1 1 ing under a State's common law.".

12 (b) Technical and Conforming Amendment. —

13 The table of sections for chapter 113 of title 18, United

14 States Code, is amended by inserting after the item relat-

15 ing to section 2319 the following:

"2319a. Creation of and traffic in bootleg sound recordings prohibited.".

16 (e) Effective Date. — This section shall take effect

17 1 year after the date of entry into force of the World

18 Trade Organization Agreement as referred to under the

19 Uruguay Round Implementation Act and shall apply to —

20 (1) all performances fixed on and after that

21 date; and

22 (2) (A) all traffic in articles containing sounds

23 fixed without their performer's authorization; and

24 (B) all broadcasts, transmissions or other dis-

25 seminations of sounds fixed without their perform-

1 er's authorization on and after that date without re-

2 gard to the date upon which the article containing

3 such sounds was fixed.

4 SEC. 4. PROHmmON OF CREATION AND TRAFFICKING IN

5 BOOTLEG SOUND RECORDINGS.

6 (a) In General. — ^Whoever, without the consent of

7 a performer or a performer's agent —

8 (1) fixes or causes to be fixed in a sound re-

9 cording;

10 (2) broadcasts, transmits, or otherwise commu-

1 1 nicates to the public or causes to be so broadcast,

12 transmitted, or otherwise communicated the sounds

13 of a live performance; or

14 (3) reproduces, distributes, sells, rents, offers

15 for sale or rent, transports, broadcasts, transmits, or

16 otherwise communicates to the public or possesses,

17 for the purpose of —

18 (A) creating any article in violation of

19 paragraph (1); or

20 (B) fixing the sounds therein,

21 shall, upon judgment of liability in a civil proceeding, be

22 subject to the sanctions under sections 502 through 505

23 of title 17, United States Code, as if he were an infringer

24 of copyright under section 501 of such title.

1 (b) Disposition of Articles Containing Unau-

2 thorized Fixations. — ^When any person is held liable

3 for a violation of subsection (a), the court in its judgment

4 shall, in addition to the other relief therein granted, order

5 the forfeiture and destruction or other disposition of all

6 articles created in violation thereof and all implements, de-

7 vices, or equipment used in the manufacture of such arti-

8 cles.

9 (c) No Preemption. — The provisions of this section

10 do not preempt any State statute or civil or criminal cause

11 of action arising under a State's common law.

12 (d) Foreign-Manufactured Articles. — (1) In a

13 case where the fixing of sounds in articles outside the

14 United States would have been a violation of subsection

15 (a) if said fixation had taken place within the United

16 States, the importation, sale, rental, or other distribution

17 of such articles is prohibited. Persons committing these

18 acts shall be subject to the sanctions set out in subsection

19 (a) to the same extent as if that subsection had been vio-

20 lated.

21 (2) (A) The Secretan^ of the Treasury and the United

22 States Postal Service shall separately or jointly prescribe

23 regulations for the enforcement of the pro\nsions of this

24 section prohibiting importation.

1 (B) The Secretary of the Treasury shall prescribe,

2 by regulation, a procedure under which any performer or

3 representative thereof may, upon payment of a specified

4 fee, be entitled to notification by the United States Cus-

5 toms Service of the importation of articles that appear to

6 consist of fixations of a particular performance.

7 (C) Articles imported in violation of the importation

8 prohibitions of this section are subject to seizure and for-

9 feiture in the same manner as property imported in viola-

10 tion of the customs revenue laws. Forfeited articles shall

1 1 be destroyed as directed by the Secretary of the Treasury

12 or the court, as the case may be, except that the articles

13 may be returned to the country of export whenever it is

14 shown to the satisfaction of the Secretary of the Treasury

15 that the importer had no reasonable grounds for believing

16 that his or her acts constituted a violation of law.

17 (e) Effectr^ Date. — This section shall take effect

18 1 year after the date of entry into force of the World

19 Trade Organization Agreement as referred to under the

20 Uruguay Round Implementation Act and shall apply to —

21 (1) all performances fLxed on and after that

22 date; and

23 (2) (A) all traffic in articles containing sounds

24 fixed without their performer's authorization; and

4''

1 (B) all broadcasts, transmissions or other dis-

2 seminations of sounds fixed without their perform-

3 er's authorization on and after that date without re-

4 gard to the date upon which the article containing

5 such sounds was fixed.

6 SEC. 5. RESTORATION OF COPYRIGHT.

7 (a) In Gexerai..— Section 104A of title 17, United

8 States Code, is amended to read as follows:

9 **§ 104A. Copyright in certain works

10 "(a) Restoration of Cop^-rigiit; Term of Re-

11 STORED COP^-RIGHT. — (1) Cop\Tight in a restorable work

12 shall vest automatically on the date of restoration.

13 "(2) Subject to the provisions of subsections (b)

14 through (j), any restorable work shall have copvTight pro-

15 tection under this title for the remainder of the term of

16 copvTight protection that it would have otherwise enjoyed

17 in the United States.

18 "(3) CopvTights in certain motion pictures and works

19 included therein as to which restoration was properly

20 sought under section 104A of this title as it was in force

21 on the day prior to the effective date of this section shall

22 be deemed to have been restored thereunder, but shall oth-

23 erwise be subject to all of the provisions of this section.

24 **(b) 0\WERSHiP OF Restored Cop\tiight.— A re-

25 stored copyright shall vest initially in the author of a

oc c^c ^^

1 restorable work as determined under the law of its source

2 country.

3 "(c) Eligibility To File Notice op Intent To

4 Enforce a Restored Copyright Against Reliance

5 Parties. — ( 1 ) Any person who owns a restored copyright,

6 or any exclusive right therein, may file or serve a notice

7 of intent to enforce that copyright against reliance parties

8 under the provisions of subsections (d) and (e) of this sec-

9 tion.

10 "(2) The filing or service of such a notice shall create

1 1 no presumption as to the truth of any statement set out

12 in such notice.

13 "(d) Remedies and Limitations Thereon.— (1)

14 Subject to paragraphs (2) through (4) of this subsection,

15 the remedies set out in chapter 5 of this title shall be avail- .

16 able, in respect of a restored copyright, immediately upon

17 restoration, with respect to any act committed on or after

18 the date of restoration.

19 "(2) The remedies for infringement set out in chapter

20 5 of this title shall be available against reliance parties

21 only upon satisfaction of at least one of the following con-

22 ditions:

23 "(A) The owner of the restored copyright files,

24 between the date of restoration and 24 months

25 thereafter, a notice of intent to enforce a restored

•S 2368 IS

1 copyright that compHes with regulations of the

2 Copyright Office that shall be published in the Fed-

3 eral Register no later than 60 days prior to the

4 TRIPS effective date.

5 "(B) As against a particular reliance party, the

6 owner serves upon that reliance party a proper no-

7 tice of intent to enforce a restored copyright.

8 "(3) Notwithstanding the provisions of paragraph

9 (2), no reliance party shall be subject to liability under

10 this title, for any act other than reproduction of the work

1 1 in which a restored copwight subsists, if such act is per-

12 formed prior to the completion of 12 months after the ear-

13 lier of publication of the title of the restored work in the

14 Federal Register or receipt of notice in compliance with

15 paragraph (2)(B).

16 "(4) Notwithstanding any other provision of law, a

17 reliance party shall be subject to statutory damages or at-

18 torney's fees only with respect to any act of infringement

19 committed after both —

20 "(A) January 1, 2000; and

21 "(B) receipt of notice that complies with sub-

22 section (e) (1), (2), and (4).

23 "(e) Notices of Intent To Enforce a Restored

24 COP^HIGHT. — (1) Any notice of intent shall clearly iden-

25 tifv—

1 "(A) the person who owns the restored copy-

2 right; and

3 "(B) the title of the restorable work, inehid-

4 ing—

5 "(i) an Enghsh translation of a foreign

6 language title; and

7 "(ii) alternative titles by which the work,

8 or a derivative work based thereon, may reason-

9 ably be expected to have been kno\vTi in the

10 United States, and any other information speci-

1 1 fied by regulation.

12 "(2) If a work has no formal title, it shall be de-

13 scribed in sufficient detail so as to maximize the prob-

14 abilitv of its identification. Such notice shall be signed bv

15 the owTier of the restored copyright or his agent. If such

16 notice is signed by an agent, the agency shall have been

17 constituted in a ^\Titing signed by the owner prior to exe-

18 cution of notice by the agent.

19 "(3) For a notice filed with the Copwight Office—

20 "(A) a reasonable fee may be imposed to cover

21 its receipt, processing, recordation, or publication of

22 the information set out in such notice of intent; and

23 "(B) minor errors and omissions may be cor-

24 rected after the period established in< subsection

•S 2368 IS

1 (d)(2)(A), and such corrections shall be published in

2 the Federal Re^ster.

3 "(4) For a notice sensed upon a reliance party, the

4 notice shall identify with substantial precision the use to

5 which the o^^Tler of the restored copvTight objects.

6 "(5) Any material false statement or claim kno^^^ngly

7 made in any notice of intent shall make void all claims

8 and assertions set out therein, with respect to all titles

9 set out therein.

10 "(6) The Cop}Tig:ht Office shall publish in the Fed-

1 1 eral Reonster, on a quarterly basis, beginnino; no later than

12 4 months after the TRIPs effective date, a list containing

13 at least the information required under paragraph (1 ) Auth

14 respect to restored copvrights as to which a notice of in-

15 tent has been filed. With respect to works whose copy-

16 rights are restored after the TRIPs effective date, the

17 Cop^Tight Office shall publish a list containing at least

18 the information required under paragi-aph (1) with respect

19 to restored cop^Tights as to which a notice of intent has

20 been filed, on a quarterly basis as established by regiila-

21 tion.

22 "(7) Such lists shall be cumulative on an annual

23 basis. In order to facilitate the public identification of re-

24 stored copATights as to which enforcement is intended, at

•S 2368 IS

1 least one complete list shall be maintained in one or more

2 files distinct from other Copyright Office records.

3 "(f) Effect of Restoration of Copyright in

4 Derivative Works, Collective Works, and Com-

5 PILATIONS. — ^A copyright restored under this section shall

6 protect only the copyrightable authorship contributed to

7 the work whose title is set out in the notice of intent. Nei-

8 ther a restored copyright in a work upon which a deriva-

9 tive work is based nor a restored copyright in a separately

10 copyrightable work contained in a collective work or eom-

1 1 pilation shall be enforceable against a reliance party unless

12 a notice of intent has been filed in the Copyright Office

13 or served on the reliance party.

14 "(g) Immunity From Warranty and Related Li-

15 ability. — (1) No person who warranted, promised or oth-

16 erwise undertook to guarantee that a work created by such

17 person infringes no rights of another, and which warranty,

18 promise, or guarantee is breached by virtue of the restora-

19 tion of copyright under this section, shall be liable to any

20 claimant seeking legal, equitable, arbitral, or administra-

21 tive relief of any type whatsoever therefore.

22 "(2) No person shall be compelled to perform, or held

23 liable for failure to perform, any act the performance of

24 which is made infringing under the provisions of this sec-

25 tion.

•S 2368 IS

1 "(h) No Estoppel. — The act of fihng any notice de-

2 scribed in subsection (e) shall not prejudice the ability of

3 a person to seek at any time a judicial determination that

4 a particular work was never in the public domain in the

5 United States.

6 "(i) Proclamation of Copyright Restora-

7 TION. — ^Whenever the President fmds that a particular

8 foreign nation extends, to works by authors who are na-

9 tionals or domiciliaries of the United States or to works

10 that are first published in the United States, restored

11 copyright protection to a similar extent as that provided

12 to restorable works under this section, the President may

13 by proclamation extend protection under this section to

14 works of which one or more of the authors is, on the date

15 of first publication, a national, domiciliary, or sovereign

16 authority of that nation, or which was first published in

17 that nation. The President may revise, suspend, or revoke

18 any such proclamation or impose any conditions or limita-

19 tions on protection under a proclamation.

20 "(j) Definitions. — For the purposes of this section

21 and section 109(a):

22 "(1) The term 'date of adherence or proclama-

23 tion' means the earlier of the dates upon which a

24 foreign country that, as of the TRIPs effective date,

25 is neither a member of the Berne Union or World

•S 2368 IS

1 Trade Organization, nor the subject of a proclama-

2 tion under section 104A(i) —

3 "(A) becomes a member of either the

4 Berne Union or World Trade Organization; or

5 "(B) is effectively proclaimed under section

6 104A(i).

7 "(2) The term 'date of restoration' of a re-

8 stored copyright means —

9 "(A) the TRIPS effective date, if the work

10 is restorable work on that date; or

11 "(B) the date of adherence or proclama-

12 tion.

13 "(3) The term 'eligible country' means a coun-

14 try, not the United States, that on the date copy-

15 right is restored under the provisions of this section

16 has either —

17 "(A) joined the World Trade Organization

18 or adhered to the Berne Convention for the

19 Protection of Literary and Artistic Works; or

20 "(B) been the subject of a proclamation

21 under subsection (i).

22 "(4) The term 'reliance party' means a person

23 who, prior to the date of enactment of the Intellec-

24 tual Property Rights General Agreement on Tariffs

25 and Trade Implementation Act of 1994, or with re-

•S 2368 IS

1 speet to a restorable work having a source country

2 that was not an ehgible country until after the

3 TRIPs effective date, prior to the date of adherence

4 or proclamation —

5 "(A) was engaged to a significant extent

6 in, and, as of the relevant date, was continuing

7 to do or authorize any of the acts set out in

8 section 106 with respect to a restorable work;

9 or

10 "(B) had, in preparing to do such acts, ei-

1 1 ther—

12 "(i) acquired a substantial number of

13 copies or phonorecords of a restorable

14 work; or

15 "(ii) made substantial monetary in-

16 vestments in respect of such work.

17 "(5)(A) The term 'restorable work' means an

18 original work of authorship that is not protected

19 under this title by virtue of —

20 "(i) noncompliance with formalities im-

21 posed at any time by United States copyright

22 law, including failure of renewal, lack of proper

23 notice, or failure to comply with the manufac-

24 turing requirement;

•S 2368 IS

1 "(ii) the absence of copyright relations be-

2 tween the United States and the source coun-

3 try; or

4 -^ "(iii) by reason of section 301(c); but not

5 in the pubHc domain in its source country

6 that —

7 "(I) has at least one author or, if the

8 work is a sound recording a producer, who

9 was, at the time the work was created, a

10 national or domiciliary of an eligible coun-

1 1 try; and

12 "(II) if published, was published ini-

13 tially in an eligible country and not pub-

14 lished within 30 days thereafter in the

15 United States.

16 "(B) No work in which the copyright was ever

17 owned or administered by the Alien Property Custo-

18 dian which could if restored, be owned by a govem-

19 ment or instrumentality thereof, shall be a restorable

20 work.

21 "(6) The term 'restored copyright' means a

22 copyright that becomes effective under the provisions

23 of this section, without regard to whether such copy-

24 right was ever previously in effect in the United

25 States.

•S 2368 IS

1 "(7)(A) The term 'source countn^' of a

2 restorable work means —

3 "(i) not the United States; and

4 "(ii)(I) in the case of an unpubhshed work,

5 the ehgible country in which —

6 "(aa) the author is a national or

7 domiciharj'; or

8 "(bb) if a restorable work has more

9 than one author, the majority of foreign

10 authors are nationals or domiciliaries; or

11 "(II) in the case of a published work, the

12 elif^ble countrs^ in which the work is initially

13 published.

14 "(B) If under subparagraph (A)(ii)(I) of this

15 definition, no majority exists, or under subparagraph

16 (A)(ii)(II) of this definition, a restorable work was

17 published on the same day in two or more eligible

18 countries, then the source country' shall be the coun-

19 try other than the United States having the most

20 significant contacts with the work.

21 "(8) The term 'TRIPs effective date' is the

22 date upon which the obligations under the Agree-

23 ment on Trade-Related Aspects of Intellectual Prop-

24 erty become effective with respect to the United

25 States.".

1 (b) Limitation on Exclusive Rights. — Section

2 109(a) of title 17, United States Code, is amended by

3 striking out "copy or phonorecord." and inserting "copy

4 or phonorecord; except that the sale or other disposition,

5 without the authorization of the owner of a restored copy-

6 right, of copies or phonorecords manufactured before the

7 date of restoration of works in which copyright has been

8 restored under the provisions of section 104A of this title

9 shall be authorized under this section —

10 "(1) only during the post-restoration grace pe-
ll riod afforded to reliance parties established by sec-

12 tion 104A(d)(3); and

13 "(2) thereafter, only as part of a sale or dis-

14 position of no more than one copy or phonorecord at

15 a time.".

16 (c) Technical and Conforming Amendment. —

17 The table of sections for chapter 1 of title 17, United

18 States Code, is amended by amending the item relating

19 to section 104A to read:

"104A. Copyright in certain works.".

20 SEC. 6. DEFINITION OF "ABANDONMENT".

21 Section 45 of the Act entitled "An Act to provide for

22 the registration and protection of trademarks used in com-

23 merce, to carry out the provisions of certain international

24 conventions, and for other purposes", approved July 5,

25 1946, commonly referred to as the Trademark Act of 1946

•S 2368 IS

1 (15 U.S.C. 1127) is amended by amending the paragraph

2 defining "abandonment" to read as follows:

3 "A mark shall be deemed to be 'abandoned' when ei-

4 ther of the following occurs:

5 "(1) Wlien its use has been discontinued wth

6 intent not to resume such use. Intent not to resume

7 may be inferred from circumstances. Nonuse for

8 three consecutive years shall be prima facie evidence

9 of abandonment. 'Use' of a mark means the bona

10 fide use of that mark made in the ordinary course

1 1 of trade, and not made merely to reserve a right in

12 a mark.

13 "(2) Wlien any course of conduct of the OAMier,

14 including acts of omission as well as commission,

15 causes the mark to become the generic name for the

16 goods or services on or in connection with which it

17 is used or otherwise to lose its significance as a

18 mark. Purchaser motivation shall not be a test for

19 determining abandonment under this paragraph.".

20 SEC. 7. NONREGISTRABILITY OF MISLEADING GEO-

21 GRAPHIC INDICATIONS FOR WINES AND

22 SPIRITS.

23 Section 2 of the Act entitled "An Act to provide for

24 the registration and protection of trademarks used in com-

25 merce, to carry out the provisions of certain international

•S 2368 IS

1 conventions, and for other purposes", approved July 5,

2 1946, commonly referred to as the Trademark Act of 1946

3 (15 U.S.C. 1052(a)) is amended by amending subsection

4 (a) to read as follows:

5 "(a) Consists of or comprises immoral, deceptive, or

6 scandalous matter; or matter which may disparage or

7 falsely suggest a connection with persons, living or dead,

8 institutions, beliefs, or national symbols, or bring them

9 into contempt, or disrepute; or a geographical indication

10 which, when used on or in connection with wines or spirits,

1 1 identifies a place other than the origin of the goods and

12 is first used on or in connection with wines or spirits by

13 the applicant on or after the date of entry into force of

14 the World Trade Organization Agreement as referred to

15 under the Uruguay Round Implementation Act.".

1 6 SEC. 8. TREATMENT OF INVENTIVE ACTIVITY.

17 (a) In General. — Section 104 of title 35, United

18 States Code, is amended to read as follows:

19 **§ 104. Invention made abroad

20 "(a) In General. — In proceedings in the Patent and

21 Trademark Office, in the courts, and before any other

22 competent authority, an applicant for a patent, or a pat-

23 entee may not establish a date of invention by reference

24 to knowledge or use thereof, or other activity with respect

25 thereto, in a foreign country other than a NAFTA country

•S 2368 IS

' 21

1 or a WTO Member country, except as provided in sections

2 119 and 365 of this title. Where an invention was made

3 by a person, civil or military', while domiciled in the United

4 Stat<>s or a NAFTA country or a WTO Member country

5 serving in any other country in connection with operations

6 by or on behalf of the United States or a NAFTA country

7 or a WTO Member country, respectively, the person shall

8 be entitled to the same rights of priority in the United

9 States wth respect to such invention as if such invention

10 had been made in the United States or a NAFTA country

11 or a WTO Member country, respectively. To the extent

12 that any information in a NAFTA country or a WTO

13 Member country concerning knowledge, use, or other ac-

14 tivity relevant to proving or disproving a date of invention

15 has not been made available for use in a proceeding in

16 the Office, a court, or any other competent authority to

17 the same extent as such information could be made avail-

18 able in the United States, the Commissioner, court, or

19 such other authority shall draw appropriate inferences, or

20 take other action permitted by statute, rule, or regulation,

21 in favor of the party that requested the information in

22 the proceeding.

23 "(b) Definitions.— For purposes of this section:

24 "(1) The term 'NAFTA countiy' has the mean-

25 ing given that term in section 2(4) of the North

1 American Free Trade Agreement Implementation

2 Act.

3 "(2) The term 'WTO Member country' has the

4 meaning given that term under the Uruguay Round

5 Implementation Act.".

6 (b) EFFECTrvE Date. — The amendments made by

7 this section shall apply to all patent applications that are

8 filed on or after the date that is 1 year after the date

9 of entry into force of the WTO Agreement, as referred

10 to in the Uruguay Round Implementation Act, except that

11 an applicant for a patent, or a patentee, may not establish

12 a date of invention that is earlier than the effective date

13 of this amendment by reference to knowledge or use there-

14 of, or other activity with respect thereto, in a World Trade

15 Organization country, except as provided in sections 119

16 and 365 of title 35, United States Code.

17 SEC. 9. PATENT RIGHTS CONFERRED.

18 (a) Contents of a Patent. — Section 154 of title

19 35, United States Code, is amended to read as follows:

20 **§ 154. Contents and term of patent

21 "(a) In General. — Every patent shall contain a

22 short title of the invention and a grant to the patentee,

23 his heirs or assigns, of the right to exclude others from

24 making, using, offering for sale, or selling the invention

25 throughout the United States and, if the invention is a

•S 2368 IS

1 process, of the right to exchide others from using, offering

2 for sale, or selHng throughout the United States, or im-

3 porting into the United States, products made by that

4 process, referring to the specification for the particulars

5 thereof. Subject to the pa\Tnent of fees as provided for

6 in this title, such grant shall be for a term beginning on

7 the date on which the patent issues and ending 20 years

8 from the date on which the application for the patent was

9 filed in the United States or, if the application contains

10 a specific reference to an earlier filed application or appli-

11 cations under sections 120, 121, or 365(c) of this title,

12 from the date on which the earliest such application was

13 filed. Priority under sections 119, 365(a), or 365(b) of

14 this title shall not be taken into account in determining

15 the term of a patent. A copy of the specification and draw-

16 ings shall be annexed to the patent and be a part thereof

17 "(b) Extension of Term if Certain Dei^y. —

18 Wliere the issuance of an original patent is delayed be-

19 cause of a proceeding under section 135(a) of this title

20 or the application is placed under an order pursuant to

21 section 181 of this title, the term of the patent shall be

22 extended for the period of delay up to 5 years.".

23 (b) Definition of Infringement. — Section 271 of

24 title 35, United States Code, is amended —

25 (1) in subsection (a) —

•S 2368 IS

1 (A) by inserting ", offers to sell," after

2 "uses"; and

3 (B) by inserting "or importing into the

4 United States any patented invention" after

5 "the United States";

6 (2) in subsection (c) by striking out "sells" and

7 inserting "offers to sell or sells within the United

8 States or imports into the United States for such

9 purposes";

10 (3) in subsection (e) —

11 (A) paragraph (1) by striking out "or sell"

12 and inserting "offer to sell, or sell within the

13 United States or import into the United

14 States";

15 (B) paragraph (3) by striking out "or sell-

16 ing" and inserting "offering to sell, or selling

17 within the United States or importing it";

18 (C) paragraph (4)(B) by striking out "or

19 sale" and inserting "offer to sell, or sale within

20 the United States or importation into the

21 United States for such purposes"; and

22 (D) paragraph (4){C) by striking out "or

23 sale" and inserting "offer to sell, or sale within

24 the United States or importation into the Unit-

25 ed States"; and

1 (4) in subsection (g) —

2 (A) in the first sentence by striking out

3 "sells" and inserting "offers to sell, sells,";

4 (B) in the second sentence by inserting

5 "offer to sell," after "importation,"; and

6 (C) in the second sentence by inserting ",

7 offer to sell" after "other use".

8 (c) Conforming Amendments. — (1) Section

9 41(c)(2) of title 35, United States Code, is amended to

10 read as follows:

11 "(2) No patent, the term of which has been

12 maintained as a result of the acceptance of a pay-

13 ment of a maintenance fee under this subsection,

14 shall abridge or affect the right of any person or his

15 successors in business who made, purchased, or used

16 an\lhing protected by the patent within the United

17 States, or imported anvthing protected by the patent

18 into the United States after the 6-month grace pe-

19 riod but prior to the acceptance of a maintenance

20 fee under this subsection, to continue the use of, to

21 offer for sale, or to sell to others to be used, offered

22 for sale, or sold, the specific thing so made, pur-

23 chased, used, or imported. The court before which

24 such matter is in question may provide for the con-

25 tinned manufacture, use, offer for sale, or sale of the

•S 2368 IS

1 thing made, purchased, or used within the United

2 States, or imported into the United States, as speci-

3 fied, or for the manufacture, use, offer for sale, or

4 sale in the United States of which substantial prepa-

5 ration was made after the 6-month grace period but

6 before the acceptance of a maintenance fee under

7 this subsection, and it may also provide for the con-

8 tinned practice of any process, practice, or for the

9 practice of which substantial preparation was made,

10 after the 6-month grace period but prior to the ac-

1 1 ceptance of a maintenance fee under this subsection,

12 to the extent and under such terms as the court

13 deems equitable for the protection of investments

14 made or business commenced after the 6-month

15 grace period but before the acceptance of a mainte-

16 nance fee under the subsection.".

17 (2) The second paragraph of section 252 of title 35,

18 United States Code, is amended to read as follows:

19 "No reissued patent shall abridge or affect the right

20 of any person or his successors in business who, prior to

21 the grant of a reissue, made, purchased, or used within

22 the United States, or imported into the United States any-

23 thing patented by the reissued patent, to continue the use

24 of, to offer to sell, or to sell to others to be used, offered

25 for sale, or sold, the specific thing so made, purchased,

1 used, or imported unless the making, using, offering for

2 sale, or selling of such thing infringes a valid claim of the

3 reissued patent which was in the original patent. The

4 court before which such matter is in question may provide

5 for the continued manufacture, use, offer for sale, or sale

6 of the thing made, purchased or used, or imported as spec-

7 ified, or for the manufacture, use, offer for sale, or sale

8 in the United States of which substantial preparation was

9 made before the grant of the reissue, and it may also pro-

10 vide for the continued practice of any process patented by

1 1 the reissue, practiced, or for the practice of which substan-

12 tial preparation was made, prior to the grant of the re-

13 issue, to the extent and under such terms as the court

14 deems equitable for the protection of investments made

15 or business commenced before the grant of the reissue.".

16 (3) Section 262 of title 35, United States Code, is

17 amended —

18 (A) by inserting ", or offer to sell," after "may

19 make use"; and

20 (B) by inserting "within the United States, or

21 import into the United States," after "or sell the

22 patented invention".

23 (4) Section 272 of title 35, United States Code, is

24 amended by inserting "offered for sale," after "vehicle and

25 is not".

•S 2368 IS

1 (5) Section 287 of title 35, United States Code, is

2 amended —

3 (A) in subsection (a) by striking out "making

4 or selling any patented article for or under them,"

5 and inserting "making, offering for sale, or selling

6 within the United States any patented article for or

7 under them, or importing any patented article into

8 the United States for such purposes,";

9 (B) in subsection (b)(1)(C) by inserting "offer

10 for sale," after "importation, use,";

11 (C) in subsection (b)(4)(A) by inserting "or of-

12 fered for sale" after "or sold";

13 (D) in subsection (b)(4)(A)(ii) by inserting

14 "offer for sale," after "importation, use,";

15 (E) in subsection (b)(4)(C) by inserting "of-

16 fered for sale or" after "patented process which

17 have"; and

18 (F) in subsection (b)(4)(C) by inserting "or im-

19 ported into the United States," after "United

20 States".

21 (6) Section 292(a) of title 35, United States Code,

22 is amended —

23 (A) by inserting "offered for sale," after "any-

24 thing made, used,";

•S 2368 IS

1 (B) by inserting "within the United States, or

2 imported into the United States" before "by him";

3 and

4 (C) by striking out "made or sold" and insert-

5 ing "made, offered for sale, sold, or imported".

6 (7) Section 295 of title 35, United States Code, is

7 amended by inserting ", offer for sale," after "importa-

8 tion, sale".

9 (8) Section 307(b) of title 35, United States Code,

10 is amended by inserting "within the United States, or im-

11 ported into the United States," after "purchased, or

12 used".

1 3 SEC. 10. PATENT TERM AND INTERNAL PRIORITY.

14 (a) Term.— Section 154 of title 35, United States

15 Code, is amended to read as follows:

16 "§ 154. Contents and term of patent

17 "(a) In General. — Every patent shall contain a

18 short title of the invention and a grant to the patentee,

19 his heirs or assigns, of the right to exclude others from

20 making, using, offering for sale, or selling the invention

21 throughout the United States and, if the invention is a

22 process, of the right to exclude others from using, offering

23 for sale, or selling throughout the United States, or im-

24 porting into the United States, products made by that

25 process, referring to the specification for the particulars

•8 S3«8 IS

1 thereof. Subject to the payment of fees as provided for

2 in this title, such grant shall be for a term beginning on

3 the date on which the patent issues and ending 20 years

4 from the date on which the application for the patent was

5 filed in the United States or, if the application contains

6 a specific reference to an earlier filed application or appli-

7 cations under sections 120, 121, or 365(c) of this title,

8 from the date on which the earliest such application was

9 filed. Priority under sections 119, 365(a), or 365(b) of

10 this title shall not be taken into account in determining

11 the term of the patent. A copy of the specification and

12 d^a^^^ngs shall be annexed to the patent and be a part

1 3 thereof.

14 "(b) Extension of Term in Certain Dei^ay. —

15 Where the issuance of an original patent is delayed be-

16 cause of a proceeding under section 135(a) of this title

17 or the application is placed under an order pursuant to

18 section 181 of this title, the term of the patent shall be

19 extended for the period of delay up to 5 years. Any and

20 all extensions available under this subsection shall not ex-

21 tend the term of an original patent for more than 5 years.

22 "(c) Terms of Certain Patents. — Except for pat-

23 ents for designs, the term of a patent in force on the effec-

24 tive date of this section shall be the greater of the 20-

25 year term provided in this section or 17 years after the

•S 2368 IS

1 date of the grant. The remedies of sections 283, 284, and

2 285 of title 35, United States Code, shall not apply to

3 any acts which were commenced or for which si^iificant

4 investment was made before the date of acceptance of the

5 World Trade Organization Agreement by the United

6 States and which became infringing because of the change

7 in the term of a patent; except that such acts may only

8 be continued upon the payment of an equitable remunera-

9 tion to the patentee.".

10 (b) Establishment of a Domestic Priority Sys-

11 tem.— (1) Section 119 of title 35, United States Code,

12 is amended to read as follows:

13 ''§119. BeneHt of earlier filing date; right of priority

14 "(a) In General. — An application for patent for an

15 invention filed in this country by any person who has, or

16 whose legal representatives or assigns have, previously

17 filed an application for a patent for the same invention

18 in a foreign countr}^ which affords similar privileges in the

19 case of applications filed in the United States shall have

20 the same effect as the same application would have if filed

21 in this country on the date on which the application for

22 patent for the same invention was first filed in such for-

23 eign country, if the application in this country' is filed

24 within 12 months from the earliest date on which such

25 foreign application was filed; but no patent shall be grant-

•S 2368 IS

1 ed on any application for patent for an invention which

2 had been patented or described in a printed pubhcation

3 in any country more than 1 year before the date of the

4 actual filing of the application in this country, or which

5 had been in public use or on sale in this country more

6 than 1 year prior to such filing.

7 "(b) Right of Priority. — No application for patent

8 shall be entitled to a right of priority under subsection

9 (a) unless a claim therefor and a certified copy of the

10 original foreign application, specification, and drawings

1 1 upon which it is based are filed in the Patent and Trade-

12 mark Office before the patent is granted, or at such time

13 during the pendency of the application as required by the

14 Commissioner not earlier than 6 months after the filing

15 of the application in this country. Such certification shall

16 be made by the patent office of the foreign country in

17 which filed and show the date of the application and of

18 the filing of the specification and other papers. The Com-

19 missioner may require a translation of the papers filed if

20 not in the English language and such other information

21 as he deems necessary.

22 "(e) Foreign Filing. — In like manner and subject

23 to the same conditions and requirements, the right pro-

24 vided under subsection (a) may be based upon a subse-

25 quent regularly filed application in the same foreign coun-

1 try instead of the first filed foreign application, provided

2 that any foreign application has been withdrawn, aban-

3 doned, or otherwise disposed of, without having been laid

4 open to public inspection and without leaving any rights

5 outstanding, and has not served, nor thereafter shall

6 serve, as a basis for claiming a right of priority.

7 "(d) Inatsntor's Certificates. — ^Applications for

8 inventor's certificates filed in a foreign country in which

9 applicants have a right to apply, at their discretion, either

10 for a patent or for an inventor's certificate shall be treated

1 1 in this countrv^ in the same manner and have the same

12 effect for purpose of the right of priority under subsection

13 (a) as applications for patents, subject to the same condi-

14 tions and requirements of this section as apply to applica-

15 tions for patents. Such applicants shall be entitled to the

16 benefits of the Stockholm Revision of the Paris Convention

17 at the time of such filing.

18 "(e) Promsional Application. — An application for

19 patent filed under sections 111(a) or 363 of this title for

20 an invention disclosed in the manner provided by the first

21 paragraph of section 112 of this title in a provisional ap-

22 plication filed under section 1 1 1 (b) of this title, by an in-

23 ventor or inventors named in the provisional application

24 shall have the same effect, as to such invention, as though

25 filed on the date of the provisional application filed under

•S 2368 IS

1 section 111(b) of this title, if the appHcation for patent

2 filed under sections 111(a) or 363 of this title is filed with-

3 in 12 months from the date on which the provisional appli-

4 cation was filed and if it contains or is amended to contain

5 a specific reference to the provisional application. A provi-

6 sional application filed under section 111(b) of this title

7 may not be relied upon in any proceeding in the Patent

8 and Trademark Office unless the fee set forth in sub-

9 section 41(a)(1)(C) has been paid and the provisional ap-

10 plication was pending on the filing date of the application

1 1 for patent under sections 111(a) or 363 of this title.".

12 (2) Section 41(a)(1) of title 35, United States Code,

13 is amended by adding at the end the following new sub-

14 paragraph:

15 "(C) On filing each provisional application

16 for an original patent, $150.".

17 (3) Section 111 of title 35, United States Code, is

18 amended to read as follows:

19 "§111. Application

20 "(a) In General. — (1) Application for patent shall

21 be made, or authorized to be made, by the inventor, except

22 as otherwise provided in this title, in \\Titing to the Com-

23 missioner. Such application shall include —

24 "(A) a specification as prescribed by section

25 112 of this title;

•S 2368 IS

1 "(B) a drawing as prescribed by section 113 of

2 this title; and

3 "(C) an oath by the appHcant as prescribed by

4 section 115 of this title.

5 "(2) The application must be accompanied by the fee

6 required by law. The fee and oath may be submitted after

7 the specification and any required drawing are submitted,

8 within such period and under such conditions, including

9 the payment of a surcharge, as may be prescribed by the

10 Commissioner. Upon failure to submit the fee and oath

1 1 within such prescribed period, the application shall be re-

12 garded as abandoned, unless it is shown to the satisfaction

13 of the Commissioner that the delay in submitting the fee

14 and oath was unavoidable or unintentional. The filing date

15 of an application shall be the date on which the specifica-

16 tion and any required drawing are received in the Patent

17 and Trademark Office.

18 "(b) Provisional Applications. — ( 1 ) A provisional

19 application for patent shall be made, or authorized to be

20 made, by the inventor, in accordance with regulations pre-

21 scribed by the Commissioner. Such application shall in-

22 elude—

23 "(A) a specification as prescribed by the first

24 paragraph of section 112 of this title; and

•S 2368 IS

1 "(B) a drawing as prescribed by section 113 of

2 this title.

3 "(2) A claim shall not be required in a provisional

4 application. The application must be accompanied by the

5 fee required by law. The fee may be submitted after the

6 specification and any required drawing are submitted,

7 within such period and under such conditions, including

8 the payment of a surcharge, as may be prescribed by the

9 Commissioner. Upon failure to submit the fee within such

10 prescribed period, the application shall be regarded as

11 abandoned, unless it is shown to the satisfaction of the

12 Commissioner that the delay in submitting the fee was un-

13 avoidable or unintentional. The filing date of a provisional

14 application shall be the date on which the specification and

15 any required drawing are received in the Patent and

16 Trademark Office. The provisional application shall be re-

17 garded as abandoned 12 months after its filing date and

18 shall not be subject to revival thereafter. Subject to all

19 the conditions in this subsection, sections 111(b)(2) and

20 119(e) and as prescribed by the Commissioner, an applica-

21 tion for patent filed under section 111(a) of this title may

22 be treated as a provisional application for patent.

23 "(3) A provisional application shall not be entitled to

24 the right of priority of any other application under sec-

25 tions 119 or 365(a) of this title or the benefit of an earlier

•S 2368 IS

1 filing date in the United States under sections 120, 121,

2 or 365(c) of this title.

3 "(4) The provisions of this title relating to applica-

4 tions for patent shall be applicable to provisional applica-

5 tions for patent, except as otherwise stated and except

6 that provisional applications for patent shall not be subject

7 to sections 115, 131, 135, and 157 of this title.".

8 (c) Technical and Conforming Amendments. —

9 (1) Section 156(a)(2) of title 35, United States Code, is

10 amended by adding "under subsection (e)(1) of this sec-

1 1 tion" after "extended".

12 (2) Section 172 of title 35, United States Code, is

13 amended —

14 (A) by striking out "section 119" and inserting

15 "section 119 (a) through (d)"; and

16 (B) by inserting at the end "The right of prior-

17 ity provided for by section 119(e) of this title shall

18 not apply to designs.".

19 (3) Section 173 of title 35, United States Code, is

20 amended by inserting "after the date of grant" after

21 "years".

22 (4) Section 365 of title 35, United States Code, is

23 amended —

•S 2368 IS

^ 38

1 (A) in subsection (a) by striking out "section

2 119" and inserting "section 119 (a) through (d)";

3 and

4 (B) in subsection (b) by striking out "the first

5 paragraph of section 119" and inserting "section

6 119(a)".

7 (5) Section 373 of title 35, United States Code, is

8 amended by striking out "section 119" and inserting "sec-

9 tion 119 (a) through (d)".

10 (6) The table of sections for chapter 11 of title 35,

1 1 United States Code, is amended —

12 (A) by striking the item relating to section 111

13 and inserting the following:

"111. Application.";

14 and

15 (B) by striking the item relating to section 119

16 and inserting the following:

"119. Benefit of earlier filing date; right of priority.".

17 SEC. 11. EFFECTIVE DATE.

18 (a) In General. — Subject to subsection (b), the pro-

19 visions of this Act and the amendments made by this Act

20 shall take effect 1 year after the date of entry into force

21 of the World Trade Organization Agreement as referred

22 to under the Uruguay Round Implementation Act.

23 (b) Patent Term and Internal Priority. — Sec-

24 tion 10 shall take effect 6 months after the date of enact-

•S 2368 IS

1 ment of this Act and shall apply to all applications filed

2 in the United States on or after the effective date. The

3 term of a patent granted on a plant or utility application

4 that is filed after the effective date and that contains a

5 specific reference to an earlier filed application under the

6 provisions of sections 120, 121, or 365(c) of title 35, Unit-

7 ed States Code, shall be determined fi-om the filing date

8 of the earliest filed application, a reference to which is

9 made under sections 120, 121, or 365(c) of such title.

DISCUSSION DRAFT (2) -TRADEMARK/
PATENT PROVISIONS FOR GATT

1 SEC. 05. DEFINITION OF "AB.XNDONMENT'.

2 Section 45 of the Act entitled "An Act to pro\ide for

3 the registration and protection of trademarks used in com-

4 meree, to can^* out the pro%isions of certain international

5 conventions, and for other purposes", approved July 5,

6 1946, cominonlv referred to as the Trademark Act of 1946

7 (15 U.S. C. 1127), is amended by amending the paragi-aph

8 defining "abandonment" to read as follows:

9 "A mark shall be deemed to be 'abandoned' if either

1 0 of the foUowing occurs:

11 "(1) When its use has been discontinued with

12 intent not to resume such use. Intent not to resume

13 may be inferred from circirnistances. Nonuse for 3

14 consecutive years shall be prima facie evidence of

15 abandonment. 'Use' of a mark means the bona fide

16 use of such mark made in the ordinary course of

17 trade, and not made merely to reserve a right in a

1 8 mark.

19 "(2) When any course of conduct of the owner,

20 including acts of omission as well as commission,

21 causes the mark to become the generic name for the

22 goods or services on or in connection with which it

23 is used or otherwise to lose its significance as a

1 mark. Purchaser motivation shall not be a test for

2 determining abandonment under tliis paragraph.".

3 SEC. 06. NONREGISTR.\BILITY OF MISLEADING GEO-

4 GRAPHIC INDICATIONS FOR WINES AND SPIR-

5 ITS.

6 Subsection (a) of section 2 of the Act entitled "An

7 Act to pro\ide for the registration and protection of trade-

8 marks used in commerce, to carry out the pro\'isions of

9 certain international conventions, and for other purposes",

10 approved July 5, 1946, commonly referred to as the

11 Trademai-k Act of 1946 (15 U.S.C. 1052(a)) is amended

1 2 to read as foUows:

13 "(a) Consists of or comprises immoral, deceptive, or

14 scandalous matter; or matter which may disparage or

15 falsely suggest a connection with persons, living or dead,

16 institutions, beliefs, or national symbols, or bring them

17 into contempt, or disrepute; or a geographical indication

18 which, when used on or in connection with wines or spirits,

19 identifies a place other than the origin of the goods and

20 is first used on or in connection with wines or spirits by

21 the applicant on or after one year after the date of entry

22 into force of the World Trade Organization Agreement as

23 referred to in section of the Uruguay Roxmd Imple-

24 mentation Act.".

1 SEC. 07. TREATMENT OF INVTNTIVE ACTIVITY.

2 Section 104 of title 35, United States Code, is

3 amended to read as follows:

4 "§ 104. Invention made abroad

5 "(a) In General. —

6 ' "(1) Proceedings. — In proceedings in the

7 Patent and Trademark Office, in the courts, and be-

8 fore any other competent authority-, an applicant for

9 a patent, or a patentee, may not establish a date of

10 invention by reference to knowledge or use thereof,

1 1 or other acti\'ity with respect thereto, in a foreign

12 country other than a NAFTA country or a WTO

13 Member country, except as pro\'ided in sections 119

14 and 365 of this title.

15 "(2) Rights. — If an invention was made by a

16 person, civil or military, while domiciled in the Unit-

17 ed States or a NAFTA country or a WTO Member

18 country serving in any other country in connection

19 with operations by or on behalf of the United States

20 or a NAFTA country or a TO Member country, re-

21 spectively, the person shall be entitled to the same

22 rights of priority in the United States with respect

23 to such invention as if such invention had been made

24 in the United States or a NAFTA country or a

25 WTO Member country, respecti\'ely.

1 "(3) Use of Information. — To the extent

2 that any information in a NAFTA country or a

3 WTO Member countiy concerning knowledge, use, or

4 other acti\itj' relevant to proAing or dispro\'ing a

5 date of invention has not been made available for

6 use in a proceeding in the Office, a court, or any

7 other competent authority- to the same extent as

8 such information could be made available in the

9 United States, the Commissioner, court, or such

10 other authority shall draw appropriate inferences, or

1 1 take other action permitted by statute, rule, or regu-

1 2 lation, in favor of the party that requested the infor-

13 mation in the proceeding.

14 "(b) Definitions. —

15 "(1) As used in this section, the term 'NAFTA

16 country' has the meaning given such term in section

17 2(4) of the North American Free Trade Agreement

1 8 Implementation Act.

19 "(2) As used in this section, the term 'WTO

20 Member country' has the meaning given such term

21 in section of the Uruguay Round Imple-

22 mentation Act.

23 "(c) Effective Date. —

24 "(1) In general. — Except as pro\ided in para-

25 graph (2), the amendments made by this section

1 shall apply to all patent applications that are filed

2 on or after the date that is one year after the date

3 of entr\' into force of the WTO Agreement, as re-

4 feired to in section of the Uruguay Round Im-

5 plementation Act.

6 ''(2) Establishment of date. — ^An applicant

7 for a patent, or a patentee, may not establish a date

8 of invention that is earlier than one year after the

9 date of entr\' into force of the WTO Agreement as

10 referred to in section of the Uruguay Round

11 Implementation Act by reference to knowledge or

12 use, or other activity, in a WTO Member country,

13 except as provided in sections 119 and 365 of this

14 title.".

15 SEC. 08. PATENT TERM AND INTERNAL PRIORITY.

16 (a) Patent Rights. — Section 154 of title 35, United

17 States Code, is amended to read as follows:

18 "SEC. 154. CONTENTS AND term OF PATENT.

19 "(a) In General. —

20 "(1) Contents. — ^Every patent shall contain a

21 short title of the invention and a grant to the pat-

22 entee, his heirs or assigns, of the right to exclude

23 others fi-om making, using, offering for sale or sell-

24 ing the invention throughout the United States or

25 importing the invention into the United States, and,

1 if the invention is a process, of the right to exclude

2 others from using, offering for sale or selling

3 tlirough the United States, or importing into the

4 United States, products made by that process, refer-

5 ring to the specification for the particulars thereof.

6 "(2) Term. — Subject to the paj-ment of fees as

7 pro\ided for pursuant to this title, such grant shall

8 be for a term begiimiug on the date on wliich the

9 patent issues and ending 20 years from the date on

10 which the application for the plant or utility patent

1 1 was filed in the United States or, if the application

12 contains a specific reference to an earher filed appli-

13 cation or an application under sections 120, 121, or

14 365(c) of this title, from the date on which the earli-

15 est such appUcation was filed.

16 "(3) Priority. — ^Priority under section 119,

17 365(a), or 365(b) of this title shall not be taken into

18 account in determining the term of a patent.

19 "(4) Specification and drawing. — ^A copy of

20 the specification and drawing shall be annexed to

2 1 the patent and be a part of such patent.

22 "(b) Term Extension. —

23 "(1) Interference delay or secrecy or-

24 DERS. — If the issue of an original patent was de-

25 layed due to a proceeding under section 135(a) of

1 this title, or because the appHcation for patent was

2 placed under an order pursuant to section 181 of

3 this title, the term of the patent shall be extended

4 for the period of delay, not to exceed 5 years.

5 "(2) Extension for judicial re\'ie>\\ — (A)

6 If the issue of a patent was delayed due to judicial

7 re^^ew and the patent was issued pursuant to a deci-

8 sion by a Federal court re\ersing an adverse deter-

9 mination of patentability'^ by the Board of Patent Ap-

10 peals and Interferences, the term of the patent shall

11 be extended for a period not to exceed 5 years. A

12 patent shall not be eligible for extension under this

13 paragraph if another patent was issued claiming

14 subject matter that is patentably indistinct from

15 that under judicial review.

16 "(B) The 5-year period referred to in para-

17 graph (1) is subject to the following limitations:

18 "(i) The period begins on the date on

19 which an appeal was filed under section 141 of

20 this title, or on which an action was commenced

21 under section 145 of this title, and ends on the

22 date of a final decision in favor of the applicant

23 from which no further appeal has been or can

24 be taken.

1 "(ii) The period shall be reduced by any

2 time attributable to judicial re^^ew before the

3 expiration of 3 years from the filing date of the

4 application for patent.

5 "(iii) The period shall be reduced for a pe-

6 riod of time, as determined by the Comjnis-

7 sioner, during which the applicant for patent

8 did not act with due diligence.

9 "(3) Length op extension. — The extension

10 of a term of a patent under paragraphs (1) or (2)

11 of this subsection shall not exceed a total of 5

12 years.".

13 "(c) Continuation. —

14 "(1) Determination. — The term of a patent

15 in force on the date that is six months after the date

16 of the enactment of the Uruguay Round Implemen-

17 tation Act shall be the greater of the 20-year term

18 or 17 years from grant as provided in subsection (a).

19 "(2) Remedies. — The remedies of sections

20 283, 284, and 285 of this title shall not apply to

21 acts which —

22 "(A) were commenced or for which sub-

23 stantial investment was made before date that

24 is six months after the date of the enactment

25 of the Uruguay Round Implementation Act; and

1 "(B) the acts became infi-inging because of

2 the change in the term of a patent.

3 "(3) REMrxER-\TlON. — The acts referred to in

4 paragraph (1) may be continued only upon the pay-

5 ment of an equitable remuneration to the patentee.".

6 As determined by whom?

7 (b) Establishment of a Domestic Priority Sys-

8 tem. —

9 (1) Section 119 of title 35, United States Code,

10 is amended —

11 (A) by designating the paragraphs as

12 "(a)", "(b)", "(c)", and "(d)", respectively; and

13 (B) by adding at the end the following:

14 "(e)(1) An apphcation for patent filed under section

15 111(a) or section 363 of this title for an invention dis-

16 closed in the manner provided by the first paragraph of

17 section 112 of this title or in a provisional application filed

18 under section 111(b) of this title, by an inventor or inven-

19 tors named in the provisional apphcation shall have the

20 same effect, as to such invention, as though filed on the

21 date of the provisional application filed under section

22 111 (b) of this title, if the apphcation for patent filed under

23 section 111(a) or section 363 of this title is filed not later

24 than 1 vear after the date on which the provisional appU-

1 cation was filed and if it contains or is amended to contain

2 a specific reference to the pro\isional application.

3 "(2) A pronsional application filed under section

4 111(b) of this title may not be relied upon in any proceed-

5 ing in the Patent and Trademark Office unless the fee

6 set forth in subparagraphs (A) or (C) of section 41(a)(1)

7 has been paid and the proAisional apphcation was pending

8 on the filing date of the application for patent under sec-

9 tion 111(a) or section 363 of this title/'.

10 (2) Section 41(a)(1) of title 35, United States

1 1 Code, is amended by adding at the end the follow-

12 ing:

13 "(C) On filing each provisional application

14 for an original patent, $150.".

15 (3) Section 111 of title 35, United States Code,

16 is amended to read as follows:

17 "§ 111. Application

18 "(a) In General. —

19 "(1) Written application. — ^An application

20 for patent shall be made, or authorized to be made,

21 by the inventor, except as othenvise pro\ided in this

22 title, in writing to the Commissioner.

23 "(2) Contents. — Such apphcation shall

24 include —

1 "(A) a specification as prescribed by sec-

2 tion 112 of this title;

3 "(B) a dra^ving as prescribed by section

4 113 of this title: and

5 "(C) an oath by the applicant as pre-

6 scribed by section 115 of this title.

7 ''(3) Fee axd oath. — The application must be

8 accompanied by the fee required by law. The fee and

9 oath may be submitted after the specification and

10 any required drawing are submitted, within such pe-

1 1 riod and under such conditions, including the pay-

12 ment of a surcharge, as may be prescribed by the

1 3 Commissioner.

14 "(4) Failure to submit. — ^Upon failure to

15 submit the fee and oath within such prescribed pe-

16 riod, the apphcation shall be regarded as abandoned,

17 unless it is shown to the satisfaction of the Commis-

18 sioner that the delay in submitting the fee and oath

19 was unavoidable or unintentional. The filing date of

20 an application shall be the date on which the speci-

21 fication and any required drawing are received in the

22 Patent and Trademark Office.

23 "(b) Provisional Application. —

24 "(1) Authorization. — Except as otherwise

25 prorided under this title, a provisional apphcation

1 for patent shall be made or autliorized to be made

2 by the inventor . Such application shall include —

3 "(A) a specification as prescribed by the

4 first paragraph of section 112 of this title; and

5 "(B) a drawing as prescribed by section

6 113 of this title.

7 "(2) Claim. — ^A claim, as required by para-

8 graphs (2) tlii-ough (5) of section 112, shall not be

9 required in a pro\'isional apphcation.

10 "(3) Fee.— (A) The apphcation must be ae-

1 1 companied by the fee required by law.

12 "(B) The fee may be submitted after the speci-

13 fication and any required drawing are submitted,

14 within such period and under such conditions, in-

15 eluding the payment of a surcharge, as may be pre-

16 scribed by the Commissioner.

17 "(C) tPpon failure to submit the fee within such

18 prescribed period, the apphcation shall be regarded

19 as abandoned, unless it is shown to the satisfaction

20 of the Commissioner that the delay in submitting

21 t±ie fee was unavoidable or unintentional.

22 "(4) Filing date.— The filing date of a provi-

23 sionaJ apphcation shall be the date on which the

24 specification and any required drawing are recei\-ed

25 in the Patent and Trademark Office.

1 "(5) Abandon"MENT. — The pro\isional applica-

2 tion shall be regarded as abandoned 1 year after its

3 filing date and shall not be subject to re\T\'al there-

4 after.

5 "(6) Conditions. — Subject to all the condi-

6 tions in this subsection, and section 119(e), and as

7 prescribed by the Commissioner, an application for

8 patent filed under subsection (a) may be ti*eated as

9 a pro\'isional application for patent.

10 "(7) No RIGHT OF PRIORITY. — ^A pro\Tsional

1 1 application shall not be entitled to the right of prior-

12 ity of any other apphcation under section 119 or

13 365(a) of this title or the benefit of an earher filing

14 date in the United States under section 120, 121, or

15 365(c) of this title.

16 "(8) Applicable provisions. — The provisions

17 of this title relating to appUcations for patent shall

18 be appheable to provisional apphcations for patent,

19 except as otherwise stated and except that provi-

20 sional applications for patent shall not be subject to

21 sections 115, 131, 135, and 157 of this title.".

22 (c) Conforming Changes. —

23 (1) Section 156(a)(2) of title 35, United States

24 Code, is amended by inserting "under subsection

25 (e)(1) of this section" after "extended".

1 (2) Section 172 of title 35, United States Code,

2 is amended —

3 (A) by striking "section 119'* and insert-

4 ing "subsections (a) through (d) of section

5 119"; and

6 (B) by inserting at the end the following

7 new sentence:

8 "The right of priority- pro\'ided for by section 119(e) of

9 this title shall not apply to designs.".

10 (3) Section 173 of title 35, United States Code,

11 is amended by inserting "from the date of grant"

12 after "years".

13 (4) Section 365 of title 35, United States Code,

14 is amended —

15 (A) in subsection (a), by striking "section

16 119" and inserting "subsections (a) through (d)

17 ' of section 119"; and

18 (B) in subsection (b), by striking "the first

19 paragraph of section 119" and inserting "see-

20 tion 119(a)".

21 (5) Section 373 of title 35, United States Code,

22 is amended by striking "section 119" and inserting

23 "subsections (a) through (d) of section 119.

vl (6) The table of sections at the beginning of

2 chapter 11 of title 35, United States Code, is

3 amended —

4 (A) by striking the item relating to section

5 111 and inserting the following:

"111. Application.";

6 (B) by striking the item relating to section

7 119 and inserting the follo^ving:
"119. Benefit of earlier filing date; right of prioritj.".

8 SEC. 09. PATENT RIGHTS.

9 (a) Definition of Infringement. — Section 271 of

10 title 35, United States Code, is amended —

11 (1) in subsection (a) —

12 (A) by inserting ", offers to sell," after

13 "uses", and

14 (B) by inserting "or imports into the Unit-

15 ed States any patented invention" after "the

16 United States";

17 (2) in subsection (c), by striking "sells" and in-

18 serting "offers to sell or sells within the United

19 States or imports into the United States";

20 (3) in subsection (e) —

21 . (A) paragraph (1), by striking "or sell"

22 and inserting "offer to sell, or sell within the

23 United States or import into the United

24 States",

1 (B) paragraph (3), by striking '"or selling"

2 and inserting "offering to sell, or selling within

3 the United States or importing into the United

4 States it",

5 (C) paragraph (4)(B), by striking "or

6 sale" and inserting "offer to sell, or sale within

7 the United States or importation into the Unit-

8 ed States",

9 (D) paragraph (4)(C), by striking "or

10 sale" and inserting "offer to sell, or sale within

11 the United States or importation into the Unit-

12 ed States"; and

13 (4) in subsection (g) —

14 (A) by striking "sells" and inserting "of-

15 fers to sell, seUs",

16 (B) by striking "importation, sale," and

17 inserting "importation, offer to sell, sale,", and

18 (C) by striking "other use or" and insert-

19 ing "other use, offer to sell, or".

20 (b) Conforming Amendments. —

21 (1) Paragraph (2) of section 41(c) of title 35,

22 United States Code, is amended to read as follows:

23 "(2) A patent, the term of which has been maintained

24 as a result of the acceptance of a pajTnent of a mainte-

25 nance fee under this subsection, shall not abridge or affect

1 the right of any person or his successors in business who

2 made, purchased, offered to sell, or used anything pro-

3 tected by the patent within the United States, or imported

4 an}i:hing protected by the patent into the United States

5 after the six-month grace period but prior to the axicept-

6 ance of a maintenance fee under this subsection, to con-

7 tinue the use of, to offer for sale, or to sell to others to

8 be used, offered for sale, or sold, the specific thing so

9 made, purchased, used, or imported. The court before

10 which such matter is in question may provide for the con-

1 1 tinned manufacture, use, offer for sale, or sale of the thing

12 made, purchased, or used within the United States, or im-

13 ported into the United States, as specified, or for the man-

14 ufacture, use, offer for sale, or sale in the United States

15 of which substantial preparation was made after the six-

16 month grace period but before the acceptance of a mainte-

17 nance fee under this subsection, and it may also pro\'ide

18 for the continued practice of any process, practiced, or for

19 the practice of which substantial preparation was made,

20 after the six-month grace period but prior to the accept-

21 ance of a maintenance fee under this subsection, to the

22 extent and under such terms as the court deems equitable

23 for the protection of investments made or business com-

24 menced after the six-month grace period but before the

25 acceptance of a maintenance fee under this subsection.".

1 (2) The second paragraph of section 252 of title

2 35, United States Code, is amended to read as fol-

3 lows:

4 "A reissued patent shaU not abridge or affect the

5 right of any person or his successors in business who prior

6 to the grant of a reissue made, purchased, offered to sell,

7 or used within the United States, or imported into the

8 United States anything patented by the reissued patent,

9 to continue the use of, to offer to sell, or to sell to others

10 to be used, offered for sale, or sold, the specific thing so

11 made, purchased, used, or imported unless the making,

12 using, offering for sale, or selling of such thing infiinges

13 a valid claim of the reissued patent which was in the origi-

14 nal patent. The court before which such matter is in ques-

15 tion may provide for the continued manufacture, use, offer

16 for sale, or sale of the thing made, purchased, used, or

17 imported as specified, or for the manufacture, use, offer

18 for sale, or sale in the United States of which substantial

19 preparation was made before the grant of the reissue, and

20 it may also provide for the continued practice of any proc-

21 ess patented by the reissue, practiced, or for the practice

22 of which substantial preparation was made, prior to the

23 grant of the reissue, to the extent and under such terms

24 as the court deems equitable for the protection of invest-

1 ments made or business commenced before the grant of

2 the reissue.".

3 (3) Section 262 of title 35. United States Code,

4 is amended —

5 (A) by striking "use or sell" and inserting

6 "use, or offer to seB, or sell", and

7 (B) by inserting "within the United States,

8 or import into the United States," after "inven-

9 tion".

10 (4) Section 272 of title 35, United States Code,

1 1 is amended by striking "not sold" and inserting "not

12 offered for sale or sold".

13 (5) Section 287 of title 35, United States Code,

14 is amended —

15 (A) in subsection (a) —

16 (i) by striking "making or selling"

17 and inserting "making, offering for sale, or

18 selling within the United States";

19 (ii) by inserting "or importing any

20 patented article into the United States"

21 after "under them,";

22 (B) in subsection (b) —

23 (i) in paragraph (1)(C), by striking

24 "use, or sale" and inserting "use, offer for

25 sale, or sale";

1 (ii) in paragraph (4) (A), by inserting

2 "or offered for sale," after "or sold";

3 (iii) in paragraph (4)(A)(ii), by strik-

4 ing "use, or sale" and inserting "use, offer

5 for sale, or sale";

6 (iv) in paragraph (4)(C), by striking

7 "have been sold" and inserting "have been

8 offered for sale or sold"; and

9 (v) in paragraph (4)(C), by striking

10 "United States before" and inserting

11 "United States or imported into the Unit-

12 ed States, before".

13 (6) Section 292(a) of title 35, United States

14 Code, is amended —

15 (A) by striking "used, or sold by him" and

16 inserting "used, offered for sale, or sold by such

17 person within the United States, or imported

18 into the United States"; and

19 (B) by striking "made or sold" and insert-

20 ing "made, offered for sale, sold or imported

21 into the United States".

22 (7) Section 295 of title 35, United States Code,

23 is amended by striking "sale, or use" and inserting

24 "sale, offer for sale, or use".

1 (8) Section 307(b) of title 35, United States

2 Code, is amended by striking "used anything" and

3 inserting "used within the United States, or im-

4 ported into the United States, anji;liing".

5 SEC. 10. EFFECTIVE DATES AND APPLICATION.

6 (a) In General. — Subject to subsection (b), the

7 amendments made by tliis [subtitle! shall take effect on

8 the date that is one year after the date of entry into force

9 of the World Trade Organization Agreement as referred

10 to in section of the Uruguay Round Implementation

11 Act.

12 (b) Appucation. —

13 (1) In general. — The amendments made in

14 section 08 shall take effect on the date that is six

15 months after the date of enactment of this Act and

16 shall apply to all apphcations filed in the United

17 States on or after the effective date.

18 (2) Earliest filing. — The term of a patent

19 granted on a plant or utihty appUcation that is filed

20 after the effective date and that contains a specific

21 reference to an earlier filed application under the

22 provisions of sections 120, 121, or 365(c) of title 35

23 shall be measured from the filing date of the earhest

24 filed apphcation, a reference to which is made in sec-

1 tions 120, 121, or 365(c) of title 35, United States

2 Code.

Mr. Hughes. The Chair recognizes the distinguished ranking Re-
pubHcan, my partner in all matters, including intellectual property,
Mr. Moorhead.

Mr. Moorhead. Thank you, Mr. Chairman. I would like to com-
mend you for your courage of wading into this GATT thicket. I
have some concerns about the General Agreement on Tariffs and
Trade. In that regard, these hearings will be helpful. The intellec-
tual and industrial parts of GATT are referred to as the trade-re-
lated aspect of the intellectual property rights, or TRIPs for short.
I support retroactivity and the 20-year patent term which we will
hear testimony on this morning.

My problems with GATT stem from other provisions. For exam-
ple, the $14 billion cost and the authority and voting procedure of
the World Trade Organization, neither of which is the subject of
this morning's hearings.

Last week, I joined with my friend and colleague, Howard Her-
man, in writing a letter to you, Mr. Chairman, wherein we ex-
pressed our very strong support for inclusion of retroactivity in the
GATT implementing legislation. I would just reiterate the point we
made in our letter that:

* * * In light of the rebuff of the U.S. efforts to extend GATT protections to
audiovisual goods, to the serious detriment of our domestic industries, inclusion of
retroactivity in the GATT implementing legislation is the least we can do to improve
the posture of our industries abroad.

I am pleased to note, Mr. Chairman, that both your bill, H.R.
4894, and Senator DeConcini's bill, S. 2368, contain retroactivity.
I am also happy that both bills before us today contain causes of
action against bootlegging activity which is a very serious problem
for the record industry. A Federal antibootlegging statute will sup-
plement the current patchwork of State laws on the issue and
should go a long way toward preventing the import of bootleg
sound recording.

The TRIPs inclusion of GATT will be very instrumental. By sign-
ing GATT, we established patent and copyright protection in over
100 countries that was deemed unobtainable only a decade ago. Mr.
Chairman, I am looking forward to the morning's testimony.

Mr. Hughes. I thank the gentleman. As you know, this is a joint
hearing of the Senate Subcommittee on Patents, Copyrights and
Trademarks, Committee on the Judiciary, and the Intellectual
Property Subcommittee of the House Committee on the Judiciary
Committee. Unfortunately, Senator DeConcini cannot be with us
this morning. He will join us a little later. But he found out yester-
day that because of a rescheduling problem in the Senate, he is
now on the floor with the intelligence legislation. And so he will
join us as soon as he completes that work on the floor.

I would like to submit for the record a statement submitted by
Senator DeConcini. Without objection, it will be received into the
record.

[The prepared statement of Mr. DeConcini follows:]

STATEMENT OF SENATOR DeCONCINI

ON THE GATT IMPLEMENTING LEGISIATION

FOR THE TRADE RELATED ASPECTS OF INTBLLECTOAL PROPERTY

AOGDST 12, 1994

THE PURPOSE OF THESE HEARINGS TODAY IS TO EXAMINE THE GATT
IMPLEMENTING LEGISLATION ON THE TRADE RELATED ASPECTS OF
INTELLECTUAL PROPERTY. THE PROVISIONS CONTAINED WITHIN THE
ADMINISTRATION'S DRAFT LEGISLATION WILL HAVE A PROFOUND EFFECT ON
U.S. INTELLECTUAL PROPERTY LAW. IN AN EFFORT TO MAKE THE
ADMINISTRATION'S DRAFT AVAILABLE TO THE PUBLIC I INTRODUCED IT AS
A SENATE BILL LAST WEEK. TODAY, WE WILL HAVE AN OPPORTUNITY TO
AIR THESE PROVISIONS BEFORE THE CONGRESS AND THE AMERICAN PUBLIC.

I INTEND TO FOCUS ON TWO ISSUES. FIRST, THE RESTORATION OF
COPYRIGHT PROTECTION TO WORKS THAT FELL INTO THE PUBLIC DOMAIN,
FOR REASONS OTHER THAN THE EXPIRATION OF THEIR TERM, BEFORE THE
UNITED STATES JOINED THE BERNE CONVENTION IN 1988. AND SECOND,
THE PROPOSED CHANGE IN THE TERM OF PATENT PROTECTION FROM 17
YEARS FROM THE DATE OF ISSUANCE TO 20 YEARS FROM THE DATE OF
FILING.

WHEN WE JOINED THE BERNE CONVENTION, CONGRESS DETERMINED
THAT IT WAS NOT NECESSARY TO EXTEND RETROACTIVE COPYRIGHT
PROTECTION TO WORKS OF FOREIGN AUTHORS WHOSE PROTECTION HAD
LAPSED BECAUSE OF THE FORMALITIES OF U.S. LAW.

MANY COPYRIGHT INDUSTRIES NOW URGE THE EXTENSION OF
RETROACTIVE PROTECTION TO THESE PRE-BERNE WORKS SINCE THE BERNE
CONVENTION HAS BEEN ADOPTED WITHIN THE TEXT OF THE URUGUAY ROUND.
THE PROPONENTS OF RETROACTIVE PROTECTION MAINTAIN THAT THIS IS AN
ESSENTIAL TRADE TOOL IN ORDER TO RECEIVE RECIPROCAL RETROACTIVE
PROTECTION FOR U.S. WORKS IN FOREIGN COUNTRIES.

THE CONVENTIONAL WISDOM WITHIN THE U.S, COPYRIGHT COMMUNITY
IS THAT THROUGH THE RESTORATION OF COPYRIGHT PROTECTION TO
FOREIGN AUTHORS WE WILL GET MORE THAN WE GIVE BECAUSE U.S.
AUTHORS WILL BE ABLE TO RETRIEVE FAR MORE WORKS IN FOREIGN
COUNTRIES THAN FOREIGN AUTHORS WILL RETRIEVE HERE IN THE UNITED
STATES .

I BELIEVE THAT THIS COST-BENEFIT ANALYSIS IS A VALID
PERSPECTIVE. HOWEVER, BEFORE WE MAKE SUCH AN ANALYSIS, WE MUST
CONSIDER WHETHER OR NOT THE MANNER IN WHICH WE PROPOSE TO RESTORE
THE RIGHTS OF FOREIGN AUTHORS WITHSTANDS CONSTITUTIONAL SCRUTINY
AND DETERMINE THE TRUE COSTS ASSOCIATED WITH REMOVING WORKS FROM
THE PUBLIC DOMAIN.

- 1 -

MOREOVER, IF WE SET OUT TO RESTORE COPYRIGHT PROTECTION TO
FOREIGN WORKS, WE MUST PROVIDE PROTECTION THAT IS COMPLETE AND
MEANINGFUL. BY THE SAME TOKEN, WE MUST ENSURE THAT COPYRIGHT
RESTORATION PROVIDES RELIANCE USERS A SUFFICIENT OPPORTUNITY TO
RECOUP THEIR INVESTMENT.

20 YEAR FIXED PATENT TERM

THE GATT IMPLEMENTING LEGISLATION ALSO CHANGES THE TERM OF A
U.S. PATENT TO 20 YEARS FROM THE DATE OF FILING RATHER THAN 17
YEARS FROM ISSUANCE. I UNDERSTAND THAT MANY SMALL INVENTORS ARE
VERY UPSET ABOUT THIS CHANGE AND THEIR CONCERNS MUST BE GIVEN
SERIOUS CONSIDERATION.

THE FIXED 20 YEAR TERM IS NOT NEW. TWO PRESIDENTIAL
COMMISSIONS, ONE IN 1966 AND THE OTHER IN 1992, HAVE RECOMMENDED
A 20 YEAR FIXED TERM FROM FILING.

THE ISSUE OF A 20 YEAR TERM HAS BEEN SQUARELY BEFORE MY
SUBCOMMITTEE SINCE EARLY 1992. I INTRODUCED LEGISLATION IN THE
102ND CONGRESS (S.2605) THAT INCLUDED A NUMBER OF SO CALLED
HARMONIZATION PROPOSALS INCLUDING A 20 YEAR TERM. THEN, IN
FEBRUARY OF 1994, I INTRODUCED THE PATENT TERM AND PUBLICATION
ACT OF 1994 (S.1854) THAT INCLUDED A 20 YEAR TERM.

THROUGH HEARINGS ON THE ISSUE, TESTIMONY INCLUDED IN THE
RECORD AND LETTERS I HAVE RECEIVED FROM SMALL INVENTORS AND
OTHERS, I REACHED THE DECISION THAT THE BENEFITS OF A FIXED 20-
YEAR TERM OUTWEIGH THE POTENTIAL HARM.

UNDER THE 17 YEAR FROM GRANT SYSTEM, INVENTORS HAVE NO
INCENTIVE TO HAVE THEIR PATENT APPLICATION PROSECUTED
EXPEDITIOUSLY. INSTEAD THEY HAVE AN INCENTIVE TO PROLONG THE
PERIOD OF TIME SPENT AT THE PATENT OFFICE, EFFECTIVELY EXTENDING
THE LIFE OF THEIR PATENT.

UNDER CURRENT PRACTICE, PATENTS CAN BE, ISSUED 10 YEARS, 20
YEARS OR EVEN LONGER AFTER THE FILING DATE. WITH A PATENT TERM
MEASURED FROM GRANT, SUCH INVENTORS HAVE EXCLUSIVE RIGHTS
EXTENDING FOR 30, 40 OR MORE YEARS AFTER A TECHNOLOGY IS FIRST
COMMERCIALIZED.

THIS CAN RESULT IN THE SITUATION WHERE A PATENT REMAINS IN
FORCE FOR AN EXTENDED PERIOD OF TIME IN THE U.S., WHILE
COUNTERPARTS OF THAT PATENT HAVE EXPIRED IN THE REST OF THE
WORLD .

A FIXED 20-YEAR TERM PUTS THE U.S. PATENT SYSTEM ON PAR WITH

- 2 -

THE PATENT SYSTEMS OF MANY OTHER INDUSTRIALIZED NATIONS,
ESTABLISHES CERTAINTY IN PATENT TERMS, AND RESPECTS THE
CONSTITUTIONAL PREMISE OF OUR PATENT SYSTEM-THAT INVENTORS ARE
ENTITLED TO THE FRUITS OF THEIR DISCOVERIES FOR ONLY A LIMITED
PERIOD OF TIME.

I APPRECIATE THE WITNESSES APPEARING BEFORE THIS JOINT
HEARING TODAY AND WOULD LIKE TO ASSURE ALL OF THOSE UNABLE TO
TESTIFY BECAUSE OF TIME CONSTRAINTS THAT WE WELCOME THEIR
COMMENTS FOR THE RECORD.

- 3 -

Mr. Hughes. Any Members have brief comments? The gentleman
from CaHfomia. Mr. Berman.

Mr. Herman of California. Yes, Mr. Chairman. As you know from
my correspondence to you of several months ago, I concur that the
GATT TRIPs agreement raises significant intellectual property is-
sues within the jurisdiction of the subcommittee. You have assem-
bled an impressive array of witnesses for today's hearing and dur-
ing the course of their testimony, I am certain the issues will be
fully ventilated.

As to the copyright matters at stake, I want to convey to my col-
league and to the administration in the clearest possible terms my
very strong support, as my friend from California, Mr. Moorhead,
mentioned, both of our strong support for the inclusion of retro-
activity and antibootlegging provisions in the GATT implementing
legislation.

I am absolutely convinced that doing so is sound public policy
and in the best interest of our country and a vital portion of the
Nation's economy, the copyright community. In light of the rejec-
tion of U.S. efforts to extend GATT protections to audiovisual
goods, which you, yourself, mentioned, Mr. Chairman, in your
opening statement, to the very serious detriment of our domestic
industries, inclusion of retroactivity and antibootlegging provisions
in the GATT implementing legislation is the least we can do to im-
prove the posture of our industries abroad.

Advances in opening up foreign markets to the export of Amer-
ican intellectual property are of little avail if we fail to take the
steps available to us to protect that property from piracy. It is evi-
dent that the inclusion of these provisions in the GATT implement-
ing legislation is in the interest of the recording and motion picture
industries, which is centered in the part of the country I am proud
to represent. But I think I am making a larger point.

When you consider the enormous contributions of these indus-
tries to the U.S. balance of trade, it is equally evident that includ-
ing provisions in the GATT legislation to increase the leverage
available to the United States to protect these industries is in the
interest of the American public, as well. That is the real test, and
I have no doubt it is met.

Mr. Chairman, I noted your opening statement and your com-
ments on the issue of discretionary versus required and your feel-
ing apparently that that which is discretionary should be passed
separately, even if it is a relevant contributing topic for the GATT
implementing legislation, and that if the legislation has merit then
it will pass.

I have too many times seen what can happen in the very closmg
portion of a session, which we are now in. I think we can take leg-
islative notice of a certain level of legislative disarray. I would just
hate to think of all the different pitfalls that could await even legis-
lation which is recognized by nearly all as meritorious. I would just
hate to see us lose the chance to do the things that would arm us
to make effective challenges in foreign countries which have not
given adequate protection to U.S. works. I think it would be a trag-
edy if we miss that opportunity.

Mr. Hughes. Will the gentleman yield? I did not say that. What
I said was that we had a gentlemen's agreement with the U.S.

Trade Representative's Office that if in fact we could not resolve
some troubling aspects of it that it would not go into fast track.

I am hopeful that we can resolve that. I am optimistic we can
resolve those problems, because I do support both retroactivity and

f)rovisions dealing with bootlegging. I am well aware of the prob-
ems. That's all I said.

Mr. Herman of California. OK, Mr. Chairman. Could I yield to
Mr. Edwards?

Mr. Hughes. The Chair will recognize the distinguished gen-
tleman from California, Mr. Edwards, at this time, the chairman
of the Civil and Constitutional Rights Subcommittee.

Mr. Edwards. Thank you, Mr. Chairman. I won't take the time
of the witnesses, but I just want to emphasize that Mr. Herman
and Mr. Moorhead are absolutely correct and it is this issue of
retroactivity that we feel must be addressed. It means jobs. It
means exports. It is just something that must be addressed, Mr.
Chairman. Thank you.

Mr. Hughes. Does the gentleman from North Carolina have an
opening statement?

Mr. Coble. No opening statement.

Mr. Hecerra. Mr. Chairman.

Mr. Hughes. The gentleman from California.

Mr. Hecerra. Thank you. I would like to thank, in his absence,
Senator DeConcini and the two of you for having these hearings on
the legislation of GATT and the issue of intellectual property. I
have become interested in the issue of resolving retroactivity be-
cause it is probably the best way to ensure that some of our older
American works, anything from Motown, to "Star Trek," to "The
Hardy Hoys" get the protection in some of these emerging foreign
markets.

It is important to ensure that countries no longer use our U.S.
law as an excuse for not extending retroactive copyright protections
to some of our own works. I know that we have brought together
a very impressive group of individuals to testify before us today. I
suspect we will be able to learn a little bit more from their particu-
lar expertise, and I am looking forward to today's hearing, not just
because we have a chance to perhaps resolve an issue, but it seems
to me that if we are going to deal with GATT and be ultimately
made to implement GATT that we have to do the best we can to
protect our intellectual property, given in many of the areas of in-
tellectual property we were not £is successful as we had hoped. And
I would hope, at least in the issue of retroactivity and bootlegging,
that we could act and do so as quickly as possible to start reaping
some of the benefits that we have lost for so long. Thank you.

Mr. Hughes. I thank the gentleman. The gentleman from Rhode
Island.

Mr. Reed. I want to commend you for holding this hearing. It is
important for the committee to thoroughly explore retroactivity. We
want to understand the consequences of recapturing ownership
rights and previously created works. From what I read, retro-
activity makes a great deal of sense, and I am eager to explore fur-
ther in this hearing the whole concept of retroactivity. It seems
clear that U.S. creators and U.S. businesses will be the ones to
benefit.

Previously created works will stimulate additional sales of books,
records, TV shows, and computer software that will entertain us in
the future and generate significant positive contributions to our
balance of trade in the world economy. I commend you for this
hearing and look forward to reviewing this issue further. Thank
you, Mr. Chairman.

Mr. Hughes. I thank the gentleman. The gentleman from Cali-
fornia, Mr. Moorhead, is recognized.

Mr. Moorhead. I ask unanimous consent that the statement of
Senator Orrin Hatch be introduced into the record.

Mr. Hughes. Without objection so ordered.

[The prepared statement of Mr. Hatch follows:]

STATKKDIT OF SKH. QRRIM HATCH

JOIHT HEARING BEFORE THE

SUBCOMMITTEE OK INTELLECTUAL PROPERTY . JUDICIAL ADMINISTRATION

OF THE HOUSE COMMITTEE ON TBB JUDICIARY

AND THE SUBCOMMITTEE ON PATENTS, COPYRIGHTS * TRADEMARKS

SENATE COMMITTEE ON THE JUDICIARY
TRADE RELATED ASPECTS OF INTELLECTUAL PROPERTY PROTECTION

convGn?nftoda;'f?of^\°^''?"'=^"^ ^"^ Chairman Hughes/for
extremal? important ih-%*,''^"^- °"'' subject this morning is
successful m5?tn2t;rarLS«2^*)^ ''°"!?? ^^ "°^ completed Ld a
intellectual prooertJ *?"^«"*^ ?" 5^^ protection of
included as a^S^cSponent ^°-"^^«^ ™"S agreement - is

they iave ii^settina''«f^^?^5°'^^*^°" ^''^^ "^^^ the progress
forVJ^nts? copyright" and'^t^r^^'^^'i''^ standards ofVotection
contention reSinySrJicSJf rJj^?^''''^ ' ^^^ough points of

For all of rh<= ^K» nff/ f '^"^ ^"^^ "«ve fallen Into the public domain,
congratulate • " "' "'*''**' '"'" ^"'*« Representative should Z

^. ^ f^^O' however, have two areas of concern where I believe
that the implementing legislation does not go far enough.

Retention of Formaltties in U.S. Laws

™ K °^ ^11 ^^® questions that vexed our two Subcommittees when
we began the long road of harmonizing our copyright law to the
broader, prevailing international standards of protection, none
has proven to be more intractable than the persistence of a
government-run system of copyright registration, presenting until
1976 an absolute bar to copyright protection and continuing until
the present day as a trap for the unwary creator who mistakenly
believes that his or her work is fully protected by copyright.
The failure of Section 412 of the Copyright Act to provide
attorney's fees and statutory damages to works that have not been
registered with the Copyright Office cannot be justified except
as a protection for copyright infringers. As Acting Register of
Copyrights Barbara Ringer unequivocally testified last October at
our hearing on the Copyright Reform Act (S. 373), this continuing
defect in our copyright law is a clear violation of the Berne
Convention, and thus a violation of GATT. No contradictory
testimony on this point was received.

Is it not logical, in this light, to expect that a
proceeding in the World Trade Organization to challenge §412 of
the Copyright Act will eventually be filed? If, as the Trade
Representative contends with respect to other issues, the
prospect of such a direct challenge to United States law provides
a basis for including relevant amending legislation in the GATT
implementing bill, i do not understand why, and regret that, the
bill we are today considering is defective in this regard.

Failure to Protect All Types of Computer Softwaret

A second problem I have with the implementing legislation
stems from its very first provision, the attempt to provide
rental rights in computer programs. I am pleased that GATT
requires its member nations to provide exclusive rental rights
for computer programs and cinematographic works . It is important
to note that, with respect to cinematographic works, an exception
to the exclusive rental right is allowed, but with respect to
computer software rental, no exceptions are permitted.

It is therefore extremely puzzling to find that the draft
legislation proposes to exempt from the rental right the only
type of computer software that is currently being rented in the
United States : video games . Perhaps a convincing reason for
this exception exists, but I have heard no explanation from the
Administration as to why the decision was made to exempt this one
discrete form of computer software from the protection that the
TRIPS agreement mandates for all forms of software.

Mr. Chairman, my concern here is with the precedent that
this unfortunate provision sets . What if one of our trading
partners decides, for reasons of its own, not to protect rental
rights for operating systems software, or for spreadsheets, or
for some other discrete form of computer program? What would be
our basis for objection, we who arbitrarily exempt video game
programs, one of the largest categories of software?

I believe this is an important issue and hope that it can be
resolved before final implementation of the GATT.

Before concluding, I must take advantage of this public
occasion to recognize the significance of the achievements of the
two chairmen who have convened this hearing and to express the
strong feeling of loss that we all share stemming from the
knowledge that neither will be here next Congress to continue
their exemplary leadership.

At the conclusion of the crime conference. Rep. Moorhead
summarized the many areas in which bipartisan cooperation has
characterized the work of the Congress in intellectual property
for all of the years that Rep. Hughes and Sen. DeConcini have
chaired their respective Subcommittees . I believe that one would
be hard-pressed to find a single issue on which such
bipartisanship did not prevail. I, for one, am very proud of the
many significant bills enacted over the past two Congresses
and proud of having served as ranking Republican during that
time.

####

Mr. Hughes. Our first panelist is Helen Delich Bentley. She
serves on the Committee on Appropriations and the Committee on
Merchant Marine and Fisheries. She graduated with a B.S. degree
with honors from the University of Missouri School of Journalism.
Before entering Congress, Representative Bentley worked as a re-
porter, television producer, and international business consultant.
She was appointed Chairman of the Federal Maritime Commission
and served in that position from 1969 until 1979.

Our second panelist is Dana Rohrabacher, who represents the
45th Congressional District of California having been elected to
that position in 1988. Prior to his election to Congress, Representa-
tive Rohrabacher was a special assistant to the President from
1981 until 1988. He worked as a writer, journalist, and radio re-
porter. He graduated with a bachelor of arts degree from Long
Beach State College in California in 1969 and a master of arts de-
gree in 1975 from the University of Southern California.

We welcome both of you to the subcommittee. We are delighted
to have you with us. And we hope you can help us. You may pro-
ceed as you see fit.

Helen, good morning.

STATEME^^^ of HON. HELEN DELICH BENTLEY, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF MARY-
LAND

Mrs. Bentley. Thank you, Mr. Chairman, and to all of the mem-
bers of the subcommittee. I welcome this opportunity to speak to
the committee on the subject of the length of terms of patents,
which I believe is a primary issue in the General Agreement on
Tariffs and Trade, GATT, of course.

The current language in GATT, which the United States has
agreed to, provides for a minimum of 20 years from the date of fil-
ing. The language now being substituted provides for a required 20
years from the date of filing. Inventors are contacting my office and
requesting that the language in the implementing legislation be 20
years from filing or 17 years from issue, whichever is longer.

I support that language. In my discussion with inventors, they
have explained how the clock ticks in obtaining a patent. It is not
an easy road of filing an application and then receiving a patent.
Some of the delays effectively would shorten the life of a patent if
the proposed language of a required 20 years — if you'll notice, I
changed my testimony from "maximum" to "required" — if the pro-
posed language of a required 20 years is included in the GATT im-
plementing legislation. It does not add a thing to the system if the
20-year period is not long enough to issue a patent due to delays
in the Patent Office.

In describing the pitfalls in obtaining an invention, one inventor
friend described it as running down a road with potholes. It is not
easy nor cheap to obtain a patent. The reasons for delays in issuing
patents rest in the Patent Office.

We all know of instances of patents which have taken long peri-
ods of time to be issued. What is important in this consideration
is the role the patent system plays in making the United States an
industrial power. The New York Times originally reported on influ-
ential patents 2 years ago as one measure of a country's economic

strength and future prosperity. High quality or influential patents
often are cited in patent filings worldwide and they signal the
emergence of important new technologies which will be under a
patent holder's exclusive control for a number of years.

In 1993, the United States led the world in influential patents
with 59,588, which is almost twice as many as Japan, Italy, the
United Kingdom, France, and Germany, combined. We must have
done something right to achieve this impressive record. And the 17
years from issue was — has been what the United States has had
as a practice in the past.

For many reasons, inventors do not understand the proposed
change in the term, nor do they understand why the Assistant Sec-
retary and Commissioner of the Patent and Trademark Office,
Bruce Lehman, signed an agreement with Japan to change the pat-
ent term. They particularly do not understand why Mr. Lehman
would do this without — without public hearings where the inven-
tors could express their opinions.

In fact, they do not understand why inventors have not been
heard before any congressional committee. I commend you for your
efforts today to hear from the inventing community and I hope they
will fully explain their story to you in subsequent hearings.

What inventors will tell you now is their sincere belief that the
proposed changes are being driven by some multinational compa-
nies and Japan. They sincerely believe the system now being devel-
oped will only benefit the rich and powerful and not the small in-
ventor, who is the person who made this country great.

Proudly, inventors will point out that with their inventions, they
are the creators of jobs and whole industries are developed, some-
thing which radically changed our lives.

We all know about the Wright brothers and Henry Ford, but
what about our modem inventors who developed the Hovercraft,
the waterbed, or my friend. Dr. Robert Rines, who developed high
resolution image scanning radar, internal organ imaging? Or my
friend, John Hall, who developed the technology for the electronic
digital watch and thereafter changed how the world keeps time.

The list is endless, but what counts is the fact that inventors'
ideas and their patents are at the base of job creation in the United
States. They are a direct contribution to the American standard of
living.

Mr. Chairman, some of these people are behind me — behind me
are friends and independent inventors and Hall of Fame members.
And they are here today. Dr. Raymond Damadian, inventor of MRI;
Dr. Wilson Greatbatch, inventor of the cardiac pacemaker. Unfortu-
nately, Dr. Robert Ledley, inventor of the CAT scan, had to leave.
They, too, support this position.

In our rush to develop trade agreements, we must not sacrifice
the secret of their success and our success. Make the language for
GATT read 20 years from filing or 17 years from issuance, which-
ever is longer. And, Mr. Chairman, before I close, I just want to
point out that this morning I met with a group of regents from one
of our great universities in Maryland, and I happened to mention
this hearing this morning. They pointed out that patents by per-
sons, such as Dr. Greatbatch and Dr. Damadian are what help the
university systems be as successful as they are in this country

today. And they need that kind of protection. Thank you, Mr.
Chairman and members of the committee.

Mr. Hughes. Thank you, Mr. Chairman.

[The prepared statement of Mrs. Bentley follows:]

REMARKS OF

CONGRESSHOMAN HELEN DELICH BENTLEY
2ND DIST. , MD.

AUGUST 12, 1994

BEFORE THE

JOINT HEARING OF THE

SUBCOMMITTEE ON INTELLECTUAL PROPERTY

AND JUDICIAL ACMINISTRATION OF THE

HOUSE COMMITTEE ON THE JUDICIARY AND

THE SUBCOMMITTEE ON PATENTS, COPYRIGHTS AND TRADEMARKS

Mr. Chairman:

Thank you for the opportunity to speak to the Coninittee on the
issue of patent terms which I believe is the primary issue in the
General Agreements on Tariffs and Trade (GATT) .

The current language in GATT which the United States agreed to
provides for a minimum of 20 years from the date of filing. The
language now being substituted provides for a REQUIRED 20 years from
the date of filing. Inventors are contacting my office and requesting
that the language in the implementing legislation be "20 years from
filing or 17 years from issue, whichever is longer."

I support that lanqruage. In my discussions with inventors they
have explained how the clock ticks in obtaining a patent. It is not am
easy road of just filing an application and then receiving a patent.
Some of the delays effectively would shorten the life of a patent if
the proposed language of a REQUIRED 20 years is included in the GATT
implementing legislation. It does not add a thing to the systea if the
20 year period is not long enough to issue a patent due to delays in
the patent office.

In describing the pitfallii^^ obtaining an Invention one inventor
friend described it as rtinning down a road with potholes. It is not
easy nor cheap to obtain a patent. The reasons for delays in issuing
patents rests in the patent office.

He all know of instances of patents which have taken long periods
of time to be issued. What is important in this consideration is the
role the patent system plays in making the United States an Industrial
power..

The New York Times originally reported on influential patents two
years ago as one measure of a country's economic strength and future
prosperity. High quality or influential patents are often cited in
patent filings world wide, signal the emergence of important new
technologies which will be under a patent holder's exclusive control
for many years.

In 1993 the United States led the world in influential patents
with 59,588 which is almost twice as many as Japan, Italy, the United
Kingdom, France and Germany.

We must have done something right to achieve this impressive
record .

For many reasons the inventors do not understand the proposed
change in the term, nor do they understand why the Assistant Secretary
and Commissioner of the Patent and Trade Mark Office, Bruce Lehman
signed an agreement with Japan to change the patent term. They
particularly do not understand why Mr. Lehman would do this WITHOUT
public hearings where the inventors could express their opinions.

In fact, they do not understand why inventors have not been heard
before CongriUkpsional conaittee. I commend you for your efforts today
to hear from the inventing community and I hope they will fully tell
their story to you in subsequent hearings.

What inventors will tell you now is their sincere belief that the
proposed changes are being driven by some multinational companies and
Japan. They sincerely believe the system now being developed will
only benefit the rich and powerful and not the small inventor.

Proudly, inventors will point out that with their inventions they
are the creators of jobs and whole industries or developed something
which radically changed our lives.

We all know about the Wright Brothers and Henry Ford, but what
about our modern inventors who developed the hovercraft, the waterbed,
or my friend Dr. Robert Rines who developed high resolution image
scanning radar, internal organ imaging.

Or, By friend John Hall, who developed the technology for the
electronic watch and thereafter changed how the world keeps time. The
list is endless, but what counts is the fact that inventors ideas and
their patents are at the base of job creation in the United States.
They are a direct contribution to the American standard of living.

MR. CHAIRMAN: Some of those people are friends and independent
inventors, are members of the Inventors Hall of Fzune, and are here
today:

Dr. Raymond Damadian, inventor of the MRI
Dr. Wilson Greatbatch, inventor of the cardiac pacemaker
unfortunately Or. Robert Ledley invent^cjr^f the cat scan had to
leave. They too support this position.

In our rush to develop trade agreements, we must not
sacrifice the secret of our success. Hake the language for GATT read
"20 years from filing or 17 years from issuance, whichever is longer.
Thank you Mr. Chairman.

Japan

20,947

Italy

1,244

France

2,809

Germany

6,592

U.K.

2,264

Mr. Hughes. Dana, welcome.

STATEMENT OF HON. DANA ROHRABACHER, A REPRESENTA-
TIVE IN CONGRESS FROM THE STATE OF CAUFORNIA

Mr. ROHRABACHER. Thank you, Mr. Chairman.

Mr. Chairman, I appreciate, too, this opportunity to testify today
before my colleagues. I am a free trader and Helen and I have
some differences on free trade. But then I was a strong supporter
of NAFTA. However, as things stand now, I will vote against
GATT.

The GATT implementing legislation contains provisions that are
unnecessary for the United States to be in compliance with GATT.
That is a very important point we ought to understand. I will
stress it later on in the testimony. That the provisions we see in
the GATT draft legislation in terms of patent provisions are not
necessary for us to be in compliance with GATT and, furthermore,
will diminish the patent protection enjoyed by our citizens.

Specifically, I am opposed to section 08 of the GATT draft legisla-
tion that changes the patent term from 17 years from grant to 20
years from filing the patent application. This provision, if it is not
removed, will mean that I will not be supporting GATT. At this
time, a growing bipartisan coalition is demanding this fix. It in-
cludes Norman Mineta, George Brown on one side. Newt Gingrich
and Bob Walker on the other, as well as many other Democratic
and Republican colleagues.

Sliding this dramatic change in our patent laws through as part
of GATT is underhanded, if not deceptive. It will cost the individ-
ual inventor and it will be a windfall to big business, foreign and
domestic. An unholy alliance between big business here and Japa-
nese interests are trying to weaken our intellectual property pro-
tection. And basically, as far as I can see, it is the big guys taking
from the little guys.

This policy, as far as I am concerned, is a total sellout, a surren-
der that I believe can easily be recognized by the actions which
Mrs. Bentley just mentioned by Commissioner of Patents, Bruce
Lehman, the agreement he made with the Japanese Commissioner
of Patents. I have a copy here of that agreement. And in it, we ex-
change a major reduction in our patent protection for our inventors
for a 2-month extension for filing a Japanese language translation.

Not only has Mr. Lehman exceeded his authority, but any casual
observer can see that he has traded away a valuable asset for noth-
ing more than a bowl of pottage.

I received a letter from the Intellectual Property Owners Associa-
tion urging me to support patent harmonization language as pro-
posed by the administration. All but a few of those listed on the
IPO letterhead were large multinational corporations who are
users of new technology. No wonder they support the so-called pat-
ent harmonization. They, like the Japanese, will benefit from rip-
ping off the rights of small companies, universities, and inventors.

Let me further state that this is not a new issue. Over 25 years
ago, Congress considered and rejected the 20-year-term filing and
other recommendations from President Johnson's Commission on
the Patent System. But this time, foreign interests and multi-

nationals are using the GATT as a stealth vehicle to achieve their
objectives.

The powers-that-be seek to change our system to be like the
international norm. But who is going to benefit by that? Weakening
our patent system helps foreign competitors and makes us less
competitive as a nation. Our current system is based on over 200
years of patent system development. It has made the United States
the leader in a number of influential patents and created an abun-
dance of wealth for our Nation. The hope that a revolutionary pat-
ent will recoup a large return to the inventor provides our Nation
with a ready source of revenue and venture capital and thus ac-
complishes more good than all the (Government sponsored jobs and
other industrisd policy schemes could ever hope to do. If we take
away this protection, what we are doing is leaving this to the Gov-
ernment to sponsor this type of research and development, or at
least taking away the source that exists today.

This so-called harmonization scheme will thus dramatically cut
the amount of money investors are willing to devote to American
research and development. Most disturbing is that the proposed
changes — I want to emphasize this, are not mandated by the Uru-
guay Round Agreements. Patent harmonization is thus an unneces-
sary poison. It is not required for the United States to be in compli-
ance with GATT.

According to article 33 of GATT, a patent must have a minimum
term of 20 years measured from its filing date. The current U.S.
patent law has that patent term of 17 years measured from when
the patent is granted. Therefore, if we look at this requirement, we
can fulfill our compliance with GATT by changing U.S. patent law
so that the patent term is 17 years from grant or 20 years from
filing, whichever is longer.

I would like to have a member of my staff give to the members
of the subcommittee a copy of the actual language of the Uruguay
round, what we have agreed to. And it says the term of protection
shall not end before

Mr. Hughes. We have that in our packets.

Mr. ROHRABACHER. All right. It says what we have agreed to
here and what is being proposed.

Mr. Hughes. We already have that.

Mr. ROHRABACHER. Thank you very much. And finally, what we
are suggesting will put us in compliance with GATT, without hav-
ing to make this major change. As stated, this is not an either/or
situation. I spoke personally to Mickey Kantor about this, and he
said 'Tou have got to accept this or you have got to reject all of
GATT."

That is not the situation here. GATT does not necessitate the
whittling away of our historic protection of the inventors. GATT
should not be used as a legislative vehicle for such a dramatic
change in our patent law.

I will end my testimony at this point, but I will address for the
record — of what I think is the most important point to be made
here. We do not need to use GATT as the vehicle for this change.
I believe it is not a proper way to make these changes. It is not
necessitated. I and many other of your colleagues. Democratic and

Republican, will oppose GATT if this provision is not removed.
Thank you.

[The prepared statement of Mr. Rohrabacher follows:]

100

Joint Hearing Before the Subcommittee on Intellectual Property

and Judicial Property

of the House Committee on the Judiciary

and the

Subcommittee on Patents, Copyrights, and Trademarks

of the

Senate Committee on the Judiciary

Friday, August 12, 1994

Keeping U.S. Patent Protection
By

Dana Rohrabacher

I am a free trader, and was a strong supporter of NAFTA. However, as
things now stand I will vote against GATT. The GATT implementing
legislation contains provisions that are unnecessary for U.S. compliance with
GATT, and will diminish the patent protection enjoyed by our citizens.
Specifically, I am opposed to Section 08 of the GATT draft legislation that
changes the patent term from 17 years from grant to 20 years from filing the
patent application. If this provision is not removed, I will continue to oppose
GATT. At this time, a growing bipartisan coalition is demanding this fix.

Sliding this dramatic change in our patent laws through as a part of the
GATT, is underhanded if not deceptive. It will cost the individual inventor,
and is a windfall to big business, foreign and domestic. An unholy alliance

101

between big business and Japanese interests are trying to weaken our
intellectual property protection. Basically it's the big guys taking from the
little guys.

This policy is a total sellout, a surrender that I believe can easily be
recognized by even a cursory look at the agreement between the U.S.
Commissioner of Patents, Bruce Lehman, and the Japanese Commissioner of
patents. Here is a copy. In it we exchange a major reduction in the patent
protection of our inventors for a two month extension for filing a Japanese
language translation. Not only has Mr. Lehman exceeded his authority, but
any casual observer can see he has traded away a valuable asset for nothing
but a bowl of pottage.

I received a letter from the Intellectual Property Owners (IPO)
association urging me to support the patent harmonization language proposed
by the Administration. All but a few of these listed on the IPO letterhead
were large multinational corporations, users of new technology. No wonder
they support so-called patent harmonization. They, like the Japanese, will
benefit from ripping off the rights of small companies, universities, and

102

inventors.

Let me ftirther state this is not a new issue. Over 25 years ago,
Congress considered and rejected the 20 year term from filing and the other
recommendations from President's Johnson's Commission on the Patent
System. But this time, foreign interests and multinationals are using the
GATT as a stealth vehicle to achieve their objectives.

Even Jerry Mossinghoff, who is testifying for the Administration's
position says those of us who are trying to preserve the present strong patent
system are "on the side of the angels." No, we are on the side of the
creators, innovators, the builders of a better tomorrow.

The powers-that-be seek to change our system to be like the
"international norm." Who will this benefit? Weakening our patent system
helps foreign competitors and makes us less competitive as a nation. Our
current system, is based on over 200 years of patent system development, has
made the U.S. the leader in the number of influential patents and created a
tremendous amount of wealth for our nation. The hope that a revolutionary

103

patent will recoup a large return to the inventor provides our nation with a
ready source of venture capital and thus accomplishes more good than all the
government sponsored jobs and other industrial policy schemes could ever
hope to do. This so called harmonization scheme will thus dramatically cut
the amount of money investors are willing to devote to R & D.

Most disturbing is that the proposed changes are not mandated by the
Uruguay Round Agreements. Patent harmonization is thus an unnecessary
poison. It is not required for the U.S. to be in compliance with the GATT.
According to article 33 of the GATT, a patent must have a minimum term of
20 years measured from its filing date. Current U.S. patent law has a patent
term of 17 years measured from when the patent was granted. Therefore we
can be in full compliance with GATT by changing U.S. patent law so the
patent term is 17 years from grant, or 20 years from filing.
WHICHEVER IS LONGER.

As stated, this is not an either-or situation. The GATT does
necessitate whittling away the historical protection our inventors now enjoy.

104

Let mc summarize this portion of my testimony by stating that the
GATT is already in trouble on the hill, let's not put any additional and
unnecessary baggage on this agreement. Unless U.S. inventors are afforded
at least 17 years protection from the time their patent is granted, many of my
colleagues and I will actively oppose the GATT.

Thus the argument comes down to whether its better to diminish the
length of patent protection, GATT or no GATT.

By making the patent period start at the time of grant, U.S. inventors
are guaranteed a fixed period of protection regardless of delays caused by the
Patent office. Conversely, by making the patent period start at filing, there is
little incentive for the Patent office to be diligent in issuing the patent. Any
delays will detract from the patent life and therefore its economic value. For
example, if a patent takes 8 years to issue, under the present system, the
inventor still receives 17 years of protection. Under the proposed change
which the term would be measured from filing date, hence the inventor would
only get 12 years of protection.

105

A month ago, President Clinton received a letter from 50 American
inventors, 15 of whom are in the Inventors Hall of Fame, and two are Nobel
Laureates, to protest the proposed change in the patent term. Their
inventions include: the first full body CAT scanner, the MRI (Magnetic
Resonance Imaging), the pacemaker, the integrated circuit, the balloon
catheter, kitty liter, surgical staples, the sailboard hand grip for wind surfing,
and even the water bed. Many of these inventors had to wait in excess of 10
years to receive their patents, some in excess of 20 years. Generally, it's the
revolutionary and useful patents that take a long time to issue.

The fact that an American patent has an assured life of 17 years has
given us the incentive to forge ahead and develop the many revolutionary
inventions that have made America the world's technological leader. It
encourages risky undertaking. Changing the emphasis now to harmonize with
societies like Japan, which stress conformity and distrust individualism,
would be a fundamental mistake. We should be strengthening, not
weakening, our protection of the rights of creators and innovators as we enter
the new technological age. That's what will ensure a better tomorrow.
That's what will insure jobs for America tomorrow.

106

Mr. Hughes. I want to thank the witnesses for their excellent
testimony. Any of the members have any questions? If not, we
thank you.

Our next panel consists of the Honorable Bruce Lehman, Assist-
ant Secretary and Commissioner, Patent and Trademark Office of
the U.S. Department of Commerce; Ira Shapiro, General Counsel,
Office of the U.S. Trade Representative; and Chris Schroeder,
Counsel to the Assistant Attorney General, Office of Legal Counsel,
U.S. Department of Justice.

Bruce is a frequent, knowledgeable and valued witness. Mr. Sha-
piro has appeared before the subcommittee on one other occasion
and we look forward to his testimony. And this is Mr. Schroeder's
first appearance before the subcommittee. We have your state-
ments. We would like you to summarize. Why don't we begin with
you, Bruce. Welcome, today.

STATEMENT OF BRUCE A. LEHMAN, ASSISTANT SECRETARY
OF COMMERCE, AND COMMISSIONER OF PATENTS AND
TRADEMARKS, U.S. DEPARTMENT OF COMMERCE

Mr. Lehman. Thank you very much, Mr. Chairman. If it pleases
the committee, I would like to ask that my statement be inserted
into the record.

Mr. Hughes. All three statements are in the record.

Mr. Lehman. Very briefly, I will make a few opening comments
to hone in on what I think are some central issues, particularly
those concerning the patent systems, and then leave it to the sub-
committee members to ask me foUowup questions, if you have any.

First of all, I would like to address the position that was ex-
pressed to you by the two previous witnesses and say that we real-
ly don't have different objectives at all. The objective of the Clinton
administration, and the objective of the Patent and Trademark Of-
fice in particular is not, in any way, to reduce or decrease the effec-
tiveness of the patent system, or the intellectual property rights
system, or to take any rights away from anybody. In fact, it is ex-
actly the opposite.

That is what the GATT TRIPs agreement is all about. With the
stroke of a pen in Marrakech, the U.S. Trade Representative, Am-
bassador Kantor, has extended significant protection for U.S. in-
ventors and the U.S. creative community on a global basis. For ex-
ample, consider the so-called 20-year term issue. As a practical
matter, with respect to present practices before the U.S. Patent
Trademark Office, 20-year term means that the overwhelming ma-
jority of inventors will actually receive increased, not decreased,
patent term. I would like to cite some statistics to you.

In September 1994, the officewide average time to dispose of a
patent application from when it was filed in the Patent Office was
19.6 months. Now, the GATT TRIPs agreement, and the adminis-
tration's interpretive objective of it as contained in this legislation,
would provide for a 20-year term from filing. At present, we have
a 17-year term from the date of issuance of the patent. Now, by my
count, that means that the average inventor, who gets his patent
approved in 19.6 months, will actually get more patent term under
this legislation than less. Let's look at some of the other tech-
nologies where, admittedly, we have a more difficult time in exam-

107

ining a patent application. I know there has been some concern
about biotechnology applications, because the average processing
time in the Patent and Trademark Office is 20.5 months. Now, the
legislation before you adds an additional 36 months to the 17-year
term which we now have. So even in this complicated area of bio-
technology, the average inventor is still going to have a longer
term.

I would also like to specifically address the independent inventor
issue because, generally speaking, independent inventors tend to
have the kinds of inventions that get approved even faster in the
Patent and Trademark Office. We have pendency times in many of
our mechanical examining groups of 12 to 13 months, and those
groups are where many of our independent inventors file applica-
tions. So we are going to see actual extension of patent terms for
these people of, in many cases, 2 years over what they have pres-
ently. I think it is important to get the facts straight, and if we do
that, we really don't have many disagreements.

I would like to say a word about the situation with the Japanese,
too, since it was raised. I think that everyone in this room is aware
that one of the most serious problems facing the United States
economy — and President Clinton has made this a centerpiece of his
international trade strategy — is that we must reduce the trade defi-
cit with Japan, which has been averaging over $60 billion a year
for a long, long time. One of the reasons that we have a significant
trade deficit with Japan is because Japan has not provided intellec-
tual property protection for some of America's most valuable assets,
such as patented and copyrighted high technology products. This
agreement, though it only deals with part of the problem, will
begin to address that difficulty. I entered into an understanding
with my counterpart in Japan that we would press for the 20-year
term here in the United States, and in return, the Japanese Patent
Office would agree to accept applications filed in the English lan-
guage. Now, some people have been told that this filing of Japanese
applications in English would only give people 2 months additional
time to file. That simply is not the case. Let's get back to the facts
again. The General Accounting Office, I believe at either your re-
quest, Mr. Chairman, or Senator DeConcini's, did a study that was
issued in July 1993 where they conducted an extensive survey of
United States companies regarding problems that they had encoun-
tered in the Japanese patent system. The companies surveyed iden-
tified six different problem areas. Of United States companies sur-
veyed, 70 percent said the most significant problem that they have
in the Japanese patent system is the inability to file in the English
language. So with a stroke of a pen here, we are actually giving
our inventors, on average, more patent protection. We are solving
a significant problem that 70 percent of our companies have identi-
fied as their most significant problem with the Japanese patent
system. I think this is a win-win situation.

Let me also say that our dealings with Japan are not finished.
I expect that we will have some significant accomplishments to re-
port in the not too distant future that will indicate that we have
established an improved working relationship with the patent sys-
tem in Japan, that will give United States inventors exclusivity in
that market. That means that United States inventors will no

108

longer have to license their inventions to Mitsubishi and
Matsushita and settle for a little royalty. Rather, they will have ex-
clusivity to market their inventions in Japan. They will be able to
set up their own distribution systems, hire their own sales people,
and market into Japan directly. We will reduce that $60 billion def-
icit because we will be opening up the Japanese market to United
States products.

There is one other positive point about the agreement with
Japan. One of the major problems with the present system of hav-
ing to file in Japanese is that when you have a translation done,
it is usually very hurriedly done, and oftentimes there may be mis-
takes in the translation. Under the present Japanese procedures,
you are stuck with these mistakes when you file the Japanese ap-
plication. One of the very significant elements of our agreement,
which again goes to this major concern of United States corpora-
tions, is that you will be able to correct the translation mistakes
in the Japanese application up to the time of your reply to the first
office action. As a practical matter, this means that inventors will
have a couple of years to correct these mistakes — not merely a cou-
ple of months. This is an enormous advantage for American busi-
ness, and you don't have to take my word for it, you can consult
your own General Accounting Office study. So I think the impor-
tant thing here, although we could probably go through some of the
other objections that have been raised, is to recognize that as far
as I am aware of, we don't have any disagreement with either the
independent inventors or inventors' groups in this country, about
what the patent system is all about. It is about providing them a
strong and preventive protection for their inventions. We have
some disagreements about the facts, and that is what this hearing
is about — to set those facts straight. I thank you.

Mr. Hughes. I thank you, Mr. Lehman.

[The prepared statement of Mr. Lehman follows:]

109

Statement of

BRUCE A. LEHMAN

ASSISTANT SECRETARY OF COMMERCE AND

COMMISSIONER OF PATENTS AND TRADEMARKS

before the

Subcommittee on Patents, Copyrights and Trademarks

Committee on the Judiciary

United States Senate

and

Subcommittee on Intellectual Property and Judicial Administration

Committee on the Judiciary
House of Representatives

August 12, 1994

Chairman DeConcini; Chainnan Hughes:

It is a pleasure to appear today to testify on S. 2368, the "Trade-Related Aspects

of Intellectual Property Rights Implementation Act of 1994," H.R. , the

Trademark/Patent Provisions for GAIT, and H.R. 4894, the "General Agreement
on Tariffs and Trade Copyright Act of 1994." All three bills contain proposals
to implement the Agreement on Trade-Related Aspects of Intellectual Property
Rights that was concluded under the Uruguay Round of multilateral trade
negotiations.

This Agreement, referred to as TRIPs, represents a giant step forward in the
protection of intellectual property for U.S. creators and innovators. With its
signing in Marrakech, we established international standards for the protection
and enforcement of intellectual property that were unthinkable only a decade ago.

110

A document prepared by the Secretariat of the General Agreement on Tariffs and
Trade calls the TRIPs Agreement "the most important multilateral agreement on
intellectual property rights negotiated in this century." We agree.

The TRIPs Agreement covers all the main categories of intellecmal property —
copyright and related rights; trademarks; geographical indications; industrial
designs; patents; layout designs of integrated circuits; and trade secrets. It
establishes high minimum standards of protection for each of these categories,
standards which each Member of the World Trade Organization (WTO) will have
to meet. It contains detailed commitments regarding procedures and remedies
that Members will have to provide to ensure that the required rights can be
enforced effectively. Finally, any disputes between governments regarding
standards or enforcement of intellectual property will be handled under
procedures that include the possibility of revocation of benefits outside the area
of intellectual property, for example, in the sphere of trade in goods.

The TRIPs Agreement builds upon existing international intellectual property
conventions. Members will be required to comply with the substantive provisions
of the Berne Convention for the Protection of Literary and Artistic Works (the
Berne Convention) and the Paris Convention for the Protection of Industrial
Property (the Paris Convention) and with the additional standards established by
TRIPs. Let me quickly highlight some of the major benefits of the TRIPs
Agreement.

Computer programs must be protected as literary works under the Berne
Convention. Compilations of data and other material in machine readable form
which constitute intellecmal creations must be protected. Rental rights must be

Ill

provided for computer programs and sound recordings. The term of protection
for performers and producers of sound recordings shall be at least 50 years.

The TRIPs Agreement defines the signs that must be eligible for protection as
trademarks and requires that the minimum period of protection and renewal be at
least seven years. Trademark owners in all industries will benefit from stronger
protection that must be given well-known marks. Practices that weaken the
function of trademarks as an indication of source, such as requirements that
foreign trademarks be "linked" with domestic trademarks, are prohibited and, for
the first time in a world-wide agreement, protection of service marks will be
guaranteed.

The TRIPs Agreement establishes a patent term of at least 20 years from the date
the patent application is filed. Product patents will be available for
pharmaceuticals and agricultural chemicals in all WTO countries, as well as for
all other fields of technology, subject to a short list of permissible exclusions.
Onerous compulsory licensing regimes will no longer be possible because the
TRIPs Agreement lays down up to fourteen conditions controlling the grant of
compulsory licenses and the government use of patented inventions.

With regard to layout-designs of integrated circuits, the TRIPs Agreement
requires that Members of the WTO respect the substantive provisions of the
Washmgton Treaty and corrects the four deficiencies in that Treaty that
prevented the United States from ratifying it. These corrections include a
requirement for a term of protection of 10 years, a right to prevent trade in
products incorporating infringing layout-designs, a right to receive a reasonable

112

royalty for the sale of stock on hand at the time of notice that it infringed, and
elimination of the liberal compulsory licensing regime.

The TRIPs Agreement, for the first time in a world-wide intellectual property
agreement, establishes standards for the protection of trade secrets. The
standards are very similar to those of our own Uniform Trade Secrets Act. In
addition, confidential data concerning pharmaceuticals and agricultural chemicals
submitted to governments to obtain marketing approval must be protected against
unfair commercial use.

In addition to establishing high standards of protection, the TRIPs Agreement
requires Members to provide effective means for rights-holders, domestic and
foreign, to enforce their intellectual property rights. The procedures and
remedies that must be available include both internal and border measures, and
both civil and criminal remedies. Commercial counterfeiting and copyright
piracy must be dealt with at the border, and willful acts of counterfeiting and
piracy must be subject to criminal penalties.

The GATT's dispute settlement procedures, as revised in the Uruguay Round,
will apply to disputes involving the TRIPs Agreement. That means that, in the
case of failure to respect and implement the findings of a dispute settlement panel,
the offending country could be open to revocation of benefits under other
agreements, including in the area of trade in goods and services.

We recognize that the TRIPs Agreement does not accomplish all that everyone
wished. No multilateral agreement does. We will, however, work bilaterally to

113

ensure that countries provide adequate and effective protection in all
technological areas and that they implement the TRIPs Agreement prompdy.

The TRIPs Agreement will require the United States to make some changes in its
laws. These changes are relatively modest and will improve the protection of
intellectual property in the United States. Where there are changes that could
affect current practices, adequate safeguards have been included to avoid
upsetting any existing conmiercial activity.

In our view, however, the changes we need to make are in our best interests. As
a result, we can state unequivocally that adoption and implementation of the
TRIPs Agreement will benefit the United States and that we should implement
our obligations promptly.

The "Trade-Related Aspects of Intellecmal Property Rights Implementation Act
of 1994," S. 2368, introduced by Chairman DeConcini, and the Trademark/Patent

Provisions for GATT, H.R. , sponsored by Chairman Hughes, represent the

combined efforts of the Administration and the Congress to implement TRIPs and
I believe it does so in an appropriate way. We have attached an appendix that
describes the effect of the provisions of these bills. H.R. 4894, introduced by
Chairman Hughes, provides some variation on the implementation of our
obligations under Article 18 of the Berne Convention and Article 14 of die TRIPs
Agreement, which Mr. Shapiro has addressed.

Of all of these changes, the provisions relating to the change in the patent term
appear to be the most controversial. We believe that the changes proposed are in
our best interests despite allegations to the contrary.

114

Article 33 of the TRIPs Agreement requires that "The term of protection
available shall not end before the expiration of a period of twenty years counted
from the filing date." Current U.S. law provides a term of 17 years from the
date the patent application issues as a patent Clearly, a change is necessary.

Although there are a number of ways to implement the Article, we chose to
recommend a term of 20 years counted fix)m the earliest filing date to which an
appUcation is entitled. That is the emerging international standard.

Since I became Commissioner, I have held a number of public hearings with our
customers. Members of the computer industry were extremely vocal about
delays in the issue of patents affecting that industry. To them, a delay of 3 to 5
years can be extremely disruptive in such a rapidly moving technology. We were
encouraged to do whatever we could to speed the processing of these appUcations.

The adoption of the 20-year term in S. 2368 and H.R. will provide such an

incentive.

Another complaint I have received involves the so-called "submarine patent." A
submarine patent is one where the appUcant makes use of procedural devices,
such as continuation applications and appeals, to extend the processing time of the
patent application. In one case, a patent issued 36 years after the first application
was filed. Under current law, the term of protection does not start until the
application is issued as a patent. Thus, the applicant waits until the market is
mature before his patent term starts, instead of having the term start reasonably
close to the time the invention is conceived and reduced to practice. As the Patent
and Trademark Office (PTO) does not disclose information about pending patent

115

applications, competitors are often surprised when these patents surface many
years after the competitors have invested in technology that they assumed was in
the public domain. This practice discourages innovation and investment, rather
than encouraging them.

By counting the term from the filing date of the original application, as proposed
in this bill, and not the issue date of the patent based on the last continuing
application, we will provide the incentive for the prompt processing desired by
the computer industry and it will no longer be possible to use the patent system to
create submarine patents.

Some users of the patent system are concerned that delays caused by the Office
and delays that are inherent in some of the complex procedures that are necessary
might, in effect, reduce the actual time between a patent's issuance and its
expiration. By September 30, 1994, the Office-wide average tiime to dispose of a
patent appUcation will be approximately 19.6- months. The pendency period for
biotechnology applications will be 20.5 months after the application is filed and
for computer-related applications, 26.5 months. Thus, most applicants will
receive a longer period of patent protection under a 20-year from filing approach
than under the current system ~ even in the technologies with the longest current
pendency. Furthermore, measuring the term from the filing date will encourage
applicants to prosecute their applications more swifdy than they do now; thus,
they can have it within their power to effectively increase the term of protection
beyond that predicted using existing data.

To ensure equitable treatment, S. 2368 and H.R. provide for restoration of

the term in instances where issuance of the patent was delayed due to national

116

security concerns, to interference proceedings, and to successful appeals of PTO
decisions. We believe that this scheme reasonably compensates for delays not
within the control of the applicant, but does not permit applicants to use the
patent system to delay the issuance of the patent urmecessarily.

Some might fear that the patent pendency periods could rise in future years. As a
result, the effective patent term would be reduced. Clearly, changing to a system
where the patent term is measured from the tiling date reduces the potential for
abuse and increases certainty for businesses. We do not agree with the vocal
minority who say we cannot improve our patent system now because we might
not have good managers or might not provide the necessary resources in the
future. We have successfully brought our average pendency down over the last
12 years and have maintained it at the 18-20 month range. Rather than expending
efforts opposing a beneficial change to a patent term of 20 years from filing, we
invite them to join with us to ensure that all patent applicants can continue to
enjoy a qualified PTO work force and benefit from sufficient resources for an
improved patent system.

As I said earlier, we agree that the TRIPs agreement is the most imfKjrtant
muhilateral agreement on intellectual property rights negotiated in this century.
We believe that the changes it requires us to make to U.S. law are all in the best
interests of the United States and that the changes other countries will make will
benefit all American creators and innovators as well as those of other countries.
We urge the Congress to act favorably on the legislation that will implement this
important agreement.
Thank you.

117
APPENDIX

COMMENTS ON THE PROVISIONS OF

S. 2368, "The Trade-Related Aspects of Intellectual
Property Rights Implementation Act of 1994"

and

H.R. , the Trademark/Patent Provisions for GATT*

Section 2 of S. 2368. Rental Rights in Computer Programs.

Article 11 of the TRIPs Agreement requires that members provide authors and
their successors in title exclusive rental rights for computer programs.
Currently, title 17 provides exclusive rental rights for computer programs,
however, the right is subject to a sunset provision. This Section eliminates the
sunset provision to conform with TRIPs.

Sections 3 and 4 of S. 2368. "Anti-Bootlegging Provisions"

Article 14(1) of the TRIPs Agreement requires members to provide performers
with the possibility of preventing the unauthorized fixation of their unfixed
performances and the reproduction of such fixations. The text also requires that
performers must have the possibility of preventing the broadcasting and the
communication to the public of their live performances.

118

In the United States, performers are protected against "bootlegging" - the
unauthorized fixation and reproduction - of their performances by both common
law and various state laws that criminalize such acts. Under the common law
remedies, performers can enforce their rights on their own behalf, or under the
criminal provisions, they can rely on state prosecutors and law enforcement
officials to act on their behalf.

Unauthorized fixation of unfixed performance and reproductions thereof, and the
unauthorized broadcast of live performances are subject to redress under the
common law of unfair competition, misappropriation, and rights of publicity,
rather than common law copyright which generally refers only to the right of
first publication. These common law remedies forbid "bootlegging" both as to
initial unauthorized fixation and subsequent reproduction of such fixations (£^
International News Svc. v. Associated Press, 248 U.S. 215 (1918); Metropolitan
Opera Ass'n v. Wagner-Nichols Recorder Corp., 101 N.Y.S.2d 483 (Sup. Ct.
1950)). This has been the result uniformly in those jurisdictions where the
question has been addressed by the courts. Common law rights and rights
provided under the statutes of various States are available to anyone within the
jurisdiction of the relevant court where relief might be sought, irrespective of the
place of fixation of the work. It is clear that foreign nationals may bring suits in
courts in the United States.

Similar decisions forbid the unauthorized broadcast of live performances. For
example, Zacchini v. Scripps -Howard Broadcasting Co., 433 U.S. 562 (1977),
and Lombardo v. Doyle, Dane & Bembach, Inc., 396 N.Y.S.2d 661 (App. Div.
1977) provided such protection based upon the right of publicity of the

119

performer; as well as Ettore v. Philco Television Broadcasting Co., 229 F.2d 481
(3d Cir. 1956); and Pittsburgh Athletic Co. v. KQV Broadcasting Co., 24 F.
Supp. 490 (W.D. Pa. 1938) where the court concluded that unfair competition
bars the unauthorized broadcast of live performances.

However, these laws and decisions are not entirely uniform and have not yet been
definitively addressed in every state. Because of their nature, they may not be an
adequate basis for providing effective border enforcement for customs authorities
to exclude importation of bootleg recordings. Consequently, to provide
performers with the right to act in their own behalf to prevent the unauthorized
fixation and reproduction of their performances, and to ensure the effective
implementation of the provisions of Article 14 of the TRIPs Agreement, S. 2368
will create Federal civil and criminal causes of action to deter "bootlegging."
These new Federal causes of action will not supersede the various state laws and
judicial decisions.

Section 5 of S, 2368. Restoration of Copyright

Article 9 of the TRIPs Agreement requires members to comply with Articles 1
through 21 of the Berne Convention for the Protection of Literary and Artistic
Works (1971) (the Berne Convention), except obligations under Article 6bis.
The obligations of Article 1 8 in respect of existing works are included. Article
14 of the TRIPs Agreement extends the obligation of Article 18 of the Berne
Convention to sound recordings and Article 70 of the TRIPs Agreement provides
that a member's obligations "with respect to existing copyrighted works shall be
solely determined under Article 18 of the Berne Convention (1971), and with
respect to the rights of producers of phonograms and performers in existing

120

phonograms shall be determined solely under Article 18 of the Berne Convention
(1971) as made applicable under Article 14.6 of this Agreement."

When the United States adhered to the Berne Convention, Congress determined
that no special legislation was necessary to implement Article 18 and that existing
U.S. law satisfied the requirements of the Convention. However, Congress also
acknowledged that the possibility of restoring copyright protection for foreign
works that had fallen into the public domain in the United States for failure to
comply with formalities was an issue that merited further discussion.

The Administration, academics, authors and the concerned copyright industries
have continued to study this issue and to explore various possibilities for
reinstituting copyright protection for certain works. This has been a matter of
particular interest in the context of the Administration's efforts to secure
adequate and effective protection for U.S. copyrighted works in foreign markets.
When we have urged others to provide protection for our industries' repertoire
of existing copyrighted works, we are often confronted with the position that
such protection will be provided there when we protect their works in the same
manner here in the United States. Clearly, providing for such protection for
existing works in our own law will improve our position in future negotiations.

The first provisions to restore copyright protection for certain foreign works that
had lost copyright protection here in the United States because of formalities that
had existed in our pre-Beme adherence law came in the North American Free
Trade Agreement (NAFTA). The NAFTA implementing legislation amended
section 104 of the copyright law to provide a means by which copyright could be
restored in certain Mexican and Canadian motion pictures and works that were

121

included in them. The TRIPs obligation to implement Article 18 of the Beme
Convention is much broader than the limited NAFTA obligation. Consequently,
the TRIPs implementing legislation includes a provision that restores copyright in
all Beme and TRIPs members' works that had lost copyright protection in the
United States due to the Berne-forbidden formalities of previous U.S. copyright
laws. It also includes provisions to permit the extension of similar protection to
the works of non-Berne and non-TRIPs members if they extend similar
protection to U.S. works.

The approach to providing renewed protection for restorable foreign works in
the United States in S. 2368 is straightforward. The new provision replaces the
NAFTA amendments in 17 U.S.C. 104A with the broader TRIPs restoration
provision. As of the effective date of the TRIPs Agreement or the date upon
which a particular country becomes a member of the World Trade Organization
(WTO), the Beme Convention, or subject to a Presidential Proclamation,
copyright is restored in all foreign works that have lost U.S. copyright protection
because of noncompliance with formalities or because the work did not originate
m a country with which the United States had copyright relations. The bill
includes further provisions to define which works are "restorable works." In
addition, to ensure that the legislation does not result in such restorations being
takings of property under the Fifth Amendment, the legislation includes
provisions to protect certain interests of parties who had relied on the loss of
copyright protection for such works, so-called "reliance parties."

Restorable works are defined as works that are under copyright protection in
their source country, but which are not protected under the U.S. copyright law
because of noncompliance with any of the formalities previously imposed under

fic;_c::jc; n _ Qt^ _ c;

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U.S. copyright law such as use of the copyright notice, registration, renewal or
the manufacturing requirement; the lack of copyright relations between the
United States and the source country of the work, or because the work in question
was a sound recording published prior to February 15, 1972. Further, at least
one author of the work must be a national or domiciliary of an eligible foreign
country, and the work must not have been simultaneously published in the United
States. Works in which the copyright was ever owned or administered by the
Alien Property Custodian are not restorable works. The legislation provides that
the ownership of copyright in a restored work shall vest initially in its author as
determined under the law of its source country. Subsequent transfers of interests
are intended to be taken into account in determining the present status of
ownership.

The term of protection for restored works is the same term which the work
would have enjoyed if it had not lost U.S. copyright protection. Thus, a 1935
French novel which lost protection for failure to renew the copyright in 1961
will obtain a 75 year term of protection which will endure until December 31,
2010. A Chinese work from 1983, before China joined the Berne Convention,
will have a term of protection of its author's life and 50 years.

Generally, full prospective liability for copyright infringement will attach upon
restoration of a copyright. In this sense, restored copyrights do not differ from
any other copyright. However, because some parties may have made extensive
use of such works or made substantial investments in their exploitation in reliance
on the lack of copyright protection in such work in the United States, special
provisions are included in respect of these "reliance parties."

123

Reliance parties are prospectively liable for unauthorized use of works in which
copyright has been restored upon receipt of notice. There are two ways in which
such notice may be given. The copyright owner of a restored work may file,
within 24 months after the date of restoration of the copyright, a notice with the
Copyright Office. The notices that are filed wiU be published periodically by the
Copyright Office, thus giving all parties constructive notice of the intent to
enforce a restored copyright. Alternatively, the copyright owner can serve a
reliance party with an actual notice informing that party of the intent to enforce
the restored copyright. To protect legitimate interests of reliance parties, S. 2368
includes several provisions intended to provide a transitional period in which
reliance parties can minimize any economic injury to their interests.

In either case, a reUance party has a period of 12 months from the earlier of the
date of constructive or actual notice in which to continue the performance,
distribution or display of the work or to sell off any existing stock of copies on
hand. However, further reproduction of the work during that 12 month period
would be an act of infringement. Moreover, reliance parties are not subject to
statutory damages or attorney's fees until January 1, 2000 and then only after
service of an actual notice that identifies the work and the use to which the
copyright owner objects. Courts should consider the proportional effect of the
use of the restored copyright in deciding whether to grant injunctive relief.
Thus, if a textbook includes only a single photograph, or a motion picture is
based on a short story, or a single article is included in an anthology, injunctive
relief may be inappropriate.

These provisions are intended to provide a transitional period which will
encourage the negotiation of licensing agreements for use of the restored works.

124

The Department of Justice has noted that these provisions in respect of rehance
users contribute substantially to the conclusion that the copyright restoration
provided for in S.2368 is not unconstitutional and not a taking under the 5th
Amendment.

Section 6 of S. 2368 and Section 5 of H.R. . Definition of

Abandonment under the Trademark Law

Under the current version of the Trademark Act of 1946, a mark is considered
abandoned when its use has been discontinued with an intent not to resume use.
Non-use for two consecutive years is prima facie evidence of abandonment.
Article 19(1) of the TRIPs Agreement provides that, except where such non-use
is excusable, a registration may be canceled only after an uninterrupted period of
three years of non-use. These Sections amend Section 45 of the Trademark Act
of 1946 to provide that three consecutive years of non-use is prima facie evidence
of abandonment. Unchanged is the existing right to prove abandonment based
upon non-use for less than three years when also establishing intent not to resume
use.

Section 7 of S. 2368 and Section 6 of H.R. . The Registrability

under the Trademark Law of a Geographical Indication Identifying
Wines or Spirits

Article 23(2) of the TRIPs Agreement requires that the registration of a
trademark which consists of a geographical indication identifying wines or spirits
not of that origin shall be refused, or if already registered, invalidated. Section
6 of H.R. amends Section 2(a) of the Trademark Act of 1946 to provide that

125

trademarks, first used on or after one year from the date of entry into force of
the Agreement Establishing the World Trade Organization, which consist of or
comprise a geographical indication for wines or spirits not of that origin, shall be
refused registration. Existing registrations and rights to marks now in use will
not be affected.

Section 8 of S. 2368 and Section 7 of H.R. . Treatment of

Inventive Activity Occurring in Worid Trade Organization Member
Countries for Establishing Date of Invention under Patent Law

These Sections amend 35 U.S.C. 104 to make it consistent with the requirements
of Article 27(1) of the TRIPs Agreement, which requires patents to be available
and patent rights enjoyable without discrimination as to the place of the invention.
Under current section 104, evidence of inventive activity outside the United
States, Canada or Mexico cannot be introduced in U.S. judicial or administrative
proceedings for purposes of establishing the date of invention. These Sections
amend section 104 to provide that evidence of inventive activity in the territory
of a WTO Member country is treated the same as inventive activity in the United
States.

These bills guard against the possibility that U.S. furos may be unable to probe
and challenge adequately such evidence because they cannot obtain other
information from a WTO Member country relevant to the date of invention. The
provision in section 104 which enables one to obtain information relevant to a
date of invention in the United States, Canada or Mexico, or if not able to obtain
the information to have an appropriate inference drawn or action taken, is also
extended to WTO Member countries.

126

As foreign inventive activity will be considered in a determination of which
inventor was the first to invent, fairness to both U.S. and foreign inventors
demands certain sameness of treatment in regard to relying on inventive activity
in the United States and abroad. Consequently, the inability of an inventor to rely
on a date of invention in the United States where the invention has been
subsequently abandoned, suppressed or concealed (section 102(g) of the patent
law) should apply equally to the inventor relying on foreign inventive activity.

Unchanged is the present practice that following a determination of which of
several inventors was the fu-st to invent a particular invention, the losing party is
precluded from patenting the invention in dispute, even if the invention of the
winning party was not made "in this country" as in section 102(g) of title 35 of
the United States Code. The losing party is precluded by interference estoppel
from successfully claiming the invention in dispute or an invention that is
patentably indistinguishable from the invention in dispute (see In re Deckler. 24
USPQ2d 1448 (Fed. Cir. 1992).

While the change to section 104 of the patent law is not scheduled to enter into
force until a year after the establishment of the WTO, changes already made to
this section to implement the NAFTA (Pub. L. 103-182, November 8, 1993) as
well as the implementing regulations to be published this fall, will preview this
further change. The implementing bills also provide that persons serving in the
armed services of one of the WTO Member countries are extended the special
provisions for those serving in the U.S. armed services regarding the ability to
rely on a date of invention while serving in another country.

127

11
Section 9 of S. 2368 and H.R. . The Nature of the Patent Right

Article 28 of the TRIPs Agreement requires Members to provide that a patent to
a product shall confer on its owner exclusive rights to prevent others from
making, using, offering for sale, selling, or importing that product. In regard to
a patent to a process, the exclusive rights conferred prevent others from using the
process, and from using, offering for sale, selhng, or importing the product
obtained directly from the process. The implementing biUs amend sections
41(c)(2), 154, 252, 262, 271, 272, 287, 292, 295 and 307 of the patent law to
align the patent rights conferred on the owner of a patent with the requirements
of Article 28 of the TRIPs Agreement.

Some of the changes made to section 154 of the patent law add to the rights of a
patent owner of an invention the right to prevent others from offering the
invention for sale or importing it into the United States, and add to the rights of a
process patent owner the right to prevent others from offering to sell the product
of the process. Changes to the other sections are made to conform the language
in those sections to the expanded rights conferred by the amended section 154.
Other changes are made to section 154 to change the term of a patent in accord
with Article 33 of the TRIPs Agreement.

Section 10 of S. 2368 and Section 8 of H.R. Term of Protection of a
Patent.

The current term of protection of a U.S. patent is 17 years measured from the
grant of the patent, provided the required fees for maintaining the patent in force
are paid. Article 33 of the TRIPs Agreement requires that the term of protection

128

available with a patent shall not end before the expiration of a period of 20 years
measured from the filing date of the application for the patent.

These Sections amend section 154 of the patent law to provide that the term of
protection begins on the date of grant and ends 20 years from the date of the
application for the patent. If the priority of an earlier application or applications
is claimed under sections 120, 121 or 365(c) of the patent law, the 20-year period
is measured from the date of the earliest of such earlier applications. S. 2368
provides that the 20-year term may be extended for up to five years for delays in
issuance of the patent due to interferences or because of national security

considerations. H.R. adds an extension for up to five years for delays in

issuance of the patent due to patentability appeals to a federal court. The
Administration supports this addition.

The Paris Convention for the Protection of Industrial Property requires that the

terms of protection of patents for the same invention granted by different
countries should generally be independent of one another. This precludes the
United States from measuring the term of protection from the filing date of a
foreign filed application, even though the benefit of that foreign filing date is
subsequently claimed in an application to the same invention filed in the United
States. To give U.S. inventors a similar opportunity of having an initial
application filing which does not serve as the basis from which the term of
protection is measured, the implementing bills provide for a provisional
application filing in the United States.

Section 1 1 1 of the patent law is amended to provide for a provisional application
which must be followed within 12 months by an application to die same

129

invention. The provisional application will not require claims and will have a
filing fee of only $150.00, which may be paid after the filing of the application.
The provisional application wiU become abandoned after 12 months. The later-
filed application is able to claim the benefit of the filing date of the provisional
application. The term of protection for the patent that results from the
appUcation runs from the fUing date of the application, even though the
application has the benefit of the filing date of the provisional application. The
benefit of the filing date of the provisional application may also be claimed when
filing applications for the same invention abroad.

The term of 20 years from the filing date will apply to all applications filed after
a transitional period of six months measured from the date of enactment of the
legislation. During this six-month period, those having patent applications
pending before the Patent and Trademark Office will be able to file continuations
or continuations-in-part without having the term of protection measured solely
from the earliest priority date claimed. Instead, pursuant to Article 70 of the
TRIPs Agreement, these applications filed before the end of the six-month
period, as well as patents that are in force at the end of the six-month period, will
be able to benefit either from the 17 years from grant term or the 20 years from
filing term, whichever is greater.

*While the substance of the two bills is very similar. H.R. contains some

improvements offered after the introduction of S. 2368, several of which are in
the effective date provisions.

130

Mr. Hughes. Mr. Shapiro, Welcome.

STATEMENT OF IRA S. SHAPIRO, GENERAL COUNSEL, OFFICE
OF THE U.S. TRADE REPRESENTATIVE

Mr. Shapiro. Thank you, Mr. Chairman. This committee needs
no statements from me about the importance of intellectual prop-
erty. You and your predecessors as chairmen have been working in
this arena for a long time. But it is true that only in recent years
has the true importance of intellectual property protection for U.S.
industries in foreign markets become an increasingly clear and im-
portant priority in our trade policy. And frankly, there is no area
that Ambassador Kantor and his predecessor. Ambassador Hills,
spend more time on than the intellectual property arena.

There are very few countries in the world where we haven't nego-
tiated and fought for copyright, patent and other intellectual prop-
erty protection, country by country, industry by industry, often-
times, and then when we have gotten strong laws, we have gone
after the ability to enforce them. And, Mr. Chairman, without exag-
geration, that goes from the European Community to Ecuador,
from Japan to Jamaica, and from China to Chile. But as we have
gone after these problems on a country-by-country basis, we have
also recognized that the most important thing we could do to ad-
vance U.S. intellectual property protection is to have a TRIPs
agreement that would bring 120 countries up to a high standard
of intellectual property protection.

As you said, Mr. Chairman, we all often focus on the disappoint-
ments that we had in certain areas, like national treatment and
the overly long transition periods, but my statement and Secretary
Lehman's lay out, as you have indicated, Mr. Chairman, the accom-
plishments in TRIPs which truly are important and indeed historic
for the full range of our intellectual property industries.

And what we are here today to address is the question of imple-
mentation of some of the provisions that were negotiated in TRIPs.
And I need, rather than start with the technical points or get into
rhetoric about the trade agreement, I need to make one common-
sense point which sometimes gets lost in the discussion.

In this area, the United States stands to gain the most. We are
a country that already provides high levels of intellectual property
protection. We are seeking to bring other countries up to our level
of protection, and we are the world leader in the industries that
benefit most from the protection. This is about bringing other na-
tions up to our level and getting the protection for our industries
around the world.

We need to make relatively few changes in our law to implement
the agreement fully, while other nations are going through consid-
erable pain because they have to put in place new legal and regu-
latory regimes. If you go around the world, whether it is Taiwan,
India, or Argentina, you will find that the intellectual property ob-
ligations that we negotiated in the TRIPs, agreement, a negotiation
that was driven by the United States' negotiators from the begin-
ning, those are huge political issues in those countries because they
have to put new regimes in place. And as we consider the imple-
menting legislation today, and we appreciate the chance to have
this hearing, we have to say that the gains of the TRIPs agreement

131

and the full benefits for our industries only occur if Congress im-
plements these important provisions.

And frankly, without the implementation, in a sense, we are
leaving our winnings on the table in this area. Now, I am going to
focus primarily on the copyright restoration issues of Berne article
18 and I am not going to say too much about it because we want
to get on with the questions. But we do believe, Mr. Chairman,
that two issues are particularly important, and I think they point
in the same direction.

The first issue is what implementation is needed for us to meet
our international obligations? Before the United States adhered to
the Berne Convention in 1989, Congress determined that we could
comply with article 18 of the Berne Convention, without removing
any works from the public domain. Congress noted at the time,
however, that the matter of implementing Berne article 18 fully
warranted further study.

It was at the time recognized to be an implementation that was
on the minimalist side. Many Berne union members disagreed with
our interpretation of article 18 at the time. But the Berne Conven-
tion did not provide a meaningful dispute resolution process, and
frankly, they could do very little more than raise their concerns
with us.

The WTO agreement, however, includes an effective dispute set-
tlement procedure that applies to the TRIPs agreement. And it is
likely that other WTO members would challenge the current imple-
mentation of Berne if it is not enlarged. Now, that is only one part
of this issue, though.

The second point which is crucial, of course, is that implementing
legislation serves the interests of U.S. industries that rely on copy-
right protection. And in that sense, the chairman's legislation, the
Senate bill, which embodied the administration's suggestions, both
point in the same direction. Retroactivity has been a high priority
of the last three administrations because we have vast bodies of
works — around the world — that stand to gain protection if we do
this. But we think, Mr. Chairman, that as the world leader, it is
critically important that we implement fully in the retroactivity
area. And I was tr3dng to find the best way to say this, but I have
to say that Eric Smith, who will testify later, found a better way
to say it.

And if I could borrow in this open forum from one of Eric's state-
ments, if we interpret article 18 of the TRIPs provisions to deny
protection or significantly limit its scope, our trading partners just
now considering their implementing legislation will feel free to sim-
ply mirror our views. And if the largest exporter of copyright mate-
rial in the world takes the position that we have no or limited obli-
gations, we are going to have little credibility in convincing our
trading partners that they should be protecting ours.

Now, I guess my main point on this is that both our inter-
national obligations and what serves U.S. industry interests in
these creative areas, particularly motion picture, sound recording
and computer software, are furthered by the retroactivity legisla-
tion, and I look forward to the chance to answer questions on it
and to try to work out legislation that would have the full support
of a consensus in the committees.

132

I think the chairman's legislation has been a helpful contribution
to this, and I think the proposals we have suggested are also help-
ful.

I just want to say in terms of the process question — ^by my defini-
tion, whenever anyone is unhappy with the way the process has
proceeded is it has obviously not proceeded successfully, and so I
take responsibility to the extent that we have not satisfied the
chairman or others on the subcommittee as to the process.

I do want to say for the record, though, that the discussion of
these issues began back in March, and we have circulated a list of
changes at that time. We circulated our first draft and exchanged
comments with not only the subcommittee, but PTO and the Copy-
right Office back in April. There were five separate drafts that
were gone over in May, so these are problems that we have all
been working on and are ongoing.

I think that at some time in the process, because we all had
other things that we were doing, we may have stopped talking
about the retroactivity question as much as we should have to work
it through, and I am committed to working through it in a satisfac-
tory way, but this has been a process that has been ongoing for
some period of months and there has been a lot of back and forth
as to how to handle this particular issue.

Mr. Hughes. Thank you, Mr. Shapiro.

[The prepared statement of Mr. Shapiro follows:]

133

TESTIMONY OF IRA S. SHAPIRO, GENERAL COUNSEL

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

BEFORE THE

SUBCOMMIHEE ON PATENTS, COPYRIGHTS, AND TRADMARKS

COMMIHEE ON THE JUDIQARY

UNITED STATES SENATE

and the

SUBCOMMHTEE ON INTELLECTUAL PROPERTY AND JUDICIAL ADMINISTRATION

COMMIHEE ON THE JUDIQARY

HOUSE OF REPRESENTATIVES

August 12, 1994

Thank you for inviting me to testify at this joint hearing before the House Judiciary
Subcommittee on Intellectual Property and Judicial Administration and the Senate Judiciary
Subcommittee On Patents, Copyrights and Trademario concerning the implementation of the Uruguay
Round Agreement on Trade-Related Aspects of Intellectual Property--the TRIPs Agreement. It is always
a pleasure to testify on an Agreement that does so much to promote U.S. interests in an area of such
importance to the U.S. economy and innovative Americans. The protection of American creativity and
inventiveness through intellectual property rights is a driving force behind continued prosperity and
progress in this country.

The TRIPs Agreement recognizes the link between trade in goods and sennces that embody the
ideas and expressions of creative minds and strong protection for intellectual property rights. Until
recently, Americans tended to focus on obtaining protection for their works, inventions and trademarks
in the United States and ignored the potential of the rest of the world.

In the past decade, however, Americans have begun to realize the value of Foreign markets and the
importance of intellectual property protection in those markets.

Trade (exports plus imports) now represents the equivalent of approximately a quarter of what
the United States produces as a nation. Intellectual property is an important component of that trade. It

134

2
makes U.S. products and services more competitive in the global market and helps ensure that each
market fairly recognizes and rewards the intellectual property component of those products and sennces.

While we often tend to focus on those issues that the TRIPs agreement does not address to
our satisfaction, such as national treatment and over-long transition periods, we should also recognize
the major achievement of that Agreement. The TRIPs agreement ensures that Americans will be able to
protect their intellectual property and enforce their rights in each of the more than 1 20 signatories of
World Trade Organization (WTO) Final Act. Every major economy in the worid is either a signatory of
that Act or is in the process of acceding to the GATT and WTO and all WTO members must accept and
implement the obligations of the Agreement on TRIPs.

The Administration is woridng with Congress to achieve enactment of implementing legislation as
soon as possible after Congress returns in September from its recess. U.S. leadership in achieving
prompt approval of the Uruguay Round Agreements and effective implementation of the obligations in
those agreements is vital and will set the pattern for other countries to follow. Our authors and
inventors, fanners and exporters of industrial goods have been waiting neariy 8 years for the benefits
from these negotiations. Now that these benefits are within our grasp, we need to ensure that they are
fully and promptly realized.

Some of the key benefits from the TRIPs Agreement are in the fields of copyright and patent
rights. Each TRIPs member is required to comply with the substantive obligations of the Berne
Convention for the Protection of Literary and Artistic Works' (Berne Convention) and the Paris
Convention for the Protection of Industrial Property (Paris Convention). Building from this foundation,

^The TRIPS Agreement explicitly excepts obligations arising
from Article 6bis of the Berne Convention relating to moral
rights .

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3
the TRIPS Agreement addresses significant deficiencies in those agreements. In the copyright area, U.S.
computer programs will be protected as literary worte; U.S. sound recordings will have a term of
protection of at least 50 years; a rental right for computer programs and sound recordings will be
provided; and U.S. performers and other right holders will have the right to prevent the unauthorized
fixation of live perfonnances in a sound recording and the reproduction of that fixation (so-called
bootlegging).

Another key copyright benefit is that the TRIPs agreement extends the application of Berne
Article 18 to sound recordings. As you may be aware, many countries do not protect sound recordings
under copyright and do not extend the same possibility of removing sound recordings from the public
domain that is accorded other works.

U.S. inventors will also see significant improvements under the TRIPs Agreement. For the first
time the scope of patent protection is defined in a multilateral trade agreement. Product and process
patents will be available for all technologies, including phannaceuticals and agricultural chemicals,
subject to limited permissible exclusions. The rights conferred under a patent will encompass the right
to prevent others from making, using, offering for sale, selling or importing the invention or the product
directly obtained by a patented process. Compulsory licensing of patent rights will come under
significant constraints and TRIPs members will be required to consider importation of a patented
product as meeting any local working requirement.

U.S. inventors will also benefit from TRIPs provisions on the tenm of protection. Many
developing countries have a patent term of 1 5 years or less detemitned from the date of application for
the patent. The TRIPs agreement provides that the term of protection must not end before 20 years
from the date of filing the application.

136

These are just a few of the many positive aspects of the TRlPs agreement. U.S. interests will
benefit from stronger protection for trademarks, trade secrets, designs, and semiconductor mask works.
Furthennore, a careful balance of rights between trademark owners and products using geographic
indications is achieved in the TRIPs agreement. Finally, the TRIPs obligations to enforce intellectual
property rights are an important step forward in making the rights provided in each country meaningful.

Implementation of the TRIPs agreement for the United States entails relatively few changes in
U.S. law. Our implementation of the agreement, including provisions incorporated from the Berne and
Paris Conventions, will be subject to the WTO dispute settlement. I believe that the choices made in our
implementation of the TRIPs agreement will set an example for other countries as governments decide
on their own implementing legislation as well as influence future disputes over the obligations of the

Agreement.

Today, I would like to focus on three elements of the TRIPs agreement that have stirred debate
recently: (1) implementation of Articles 9, 14, and 70 relating to application of Berne Article 18 to
works and sound recordings; (2) implementation of Article 1 4 relating to bootleg sound recordings; and
(3) the terni of patent protection.
Copyright Restoration

The requirement that all WTO members comply with the substantive provisions of the Berne
Convention, including Article 18, and the explicit extension of that requirement to sound recordings,
represents one of the major benefits of the TRIPs Agreement to U.S. owners of copyright. The decisions
we make on implementation of Berne Article 18, however, will affect whether U.S. works that are now in
the public domain in other countries, including the major markets of Russia and Eastern Europe, will be

137

5
protected. U.S. worte created prior to 1953, including many classic motion pictures, and many sound
recordings, would be subject to restored protection in those countries.

Before the United States adhered to the Berne Convention in 1989, Congress detemiined that
the United States could comply with Article 1 8 of the Convention without removing any works from the
public domain. Congress noted, however, that the matter of implementing Berne Article 18 warranted
further study.

Although several Berne Union Members disagreed with the U.S. interpretation of Article 18 when
we adhered, the Convention does not provide a meaningful dispute resolution process and they could
do little more than raise the issue in bilateral discussions. The WTO Agreement, however, includes
effective dispute settlement procedures that apply to the TRIPs agreement. It is likely that other WTO
members would challenge the current U.S. implementation of Berne Article 18 under those procedures.

Some other countries, such as Thailand and Russia, have refused to protect U.S. works in the
public domain in their territory citing the U.S. interpretation of Berne Article 18 as justification. U.S.
authors and our copyright industry are thus denied protection for important works and the revenues that
would result from licensing or othenwise exploiting those worio. Thus since 1989, there has developed
both legal and trade reasons to provide copyright protection for certain foreign works in the public
domain in this country.

Last year. Congress in the North American Free Trade Agreement Implementation Act (NAFTA)
took a first step in a more fulsome implementation of Berne Article 18 by authorizing restoration of
copyright protection to certain Mexican and Canadian motion pictures and other works included in those
motion pictures.

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6
Turning to the specific proposals, H.R. 4894 and S.2368 are quite similar in many respects and

are consistent with the Administration's objective of going beyond the NAFTA and providing a more

fulsome implementation of Berne Article 18. Both bills would restore copyright protection to foreign

works, including sound recordings, from Berne Union or VITTO Member countries which are not protected

under federal copyright law in the United States because the copyright owner failed to comply with one

or more of the fonnalities required by U.S. copyright law, for instance by publication without a proper

copynght notice, failure of renewal, or non-compliance with the manufacturing clause or other similar

provisions of the copyright law. S. 2368, however, includes authority for the President to extend

reciprocal treatment is provided. The Administration strongly supports this provision and believes that it

is key to achieving copyright protection for U.S. works in important markets in the near future.

Another common element of H.R. 4894 and S. 2368 is the requirement that a work subject to
restored copyright must be protected in its source country, and only foreign works would be subject to
restored copyright protection. Such protection would come into being only after the effective date of the
implementing bill. Any action taken by a party prior to the effective date that a copyright is restored in
a foreign public domain wori( will not be subject to a remedy.

Under both S.2368 and H.R. 4894, the tenii of a restored copyright would be the same as the
work would have enjoyed had the copyright owner complied with all of the requirements in U.S. law as it
previously existed. Thus, for example, a French short story that was published without copyright notice
in 1935 will be treated as if it had both been published with a proper notice and property renewed,
meaning that its restored copyright will expire on December 31, 2010 (75 years after the U.S. copyrigM
would have come into existence). Similarly, a Chinese play from 1983 wiil be protected until December
31 of the fiftieth yev after the year in which its au^r dies.

139

7
Both S. 2368 and H.R. 4894 distinguish between a party that has engaged in some activity with

respect to a work prior to the date copyright was restored, i.e., "a reliance party," and a party that

engaged in that activity only after copyright is restored. This is an important distinction and S.2368

includes a slightly broader definition of actions that may qualify a party as a reliance party. For

example, H.R. 4894 limits the investment aspect of qualifying as a reliance party to investments in

creating a derivative woric No such limitation exists in S. 2368.

With respect to a party that does not qualify as a "reliance party," both bills provide that the
owner of a restored copyright will be able to enforce rights in the subject work immediately and may
obtain all remedies in respect of infringements by a non reliance party occurring on or after the
effective date of the implementing bill.

A "reliance party," however, stands on a different footing in respect of liability for acts that
would nonnally be considered infringement of copyright. Both H.R. 4894 and S. 2368 grant a "reliance
party" a 1 2-month grace period, during which time that party may sell off previously manufactured
stock, publicly perfomi or publicly display the work, or authorize others to conduct these activities. Both
bills also limit the availability of statutory damages and attorney's fees against reliance parties. The
combination of grace-period and limitations on remedies will provide an opportunity for reliance parties
to negotiate licenses and recognize at least some of the economic benefits of their investment in works
subject to restored copyright.

Injunctive relief and actual damages are available against reliance parties when notice and time
requirements are met. In determining whether to provide injunctive relief, however, the Administration
believes that the concept of proportionality should be applied to ensure that injunctive relief reflects the
extent and importance of the infringement in relation to the work of which it is a part. For example,
when a restored copyright subsists in a single poem contained in an anthology, a photograph in a text

140

book, or a short story upon which a reliance party has based a motion picture, injunctive relief may not
be appropnate.

S.2368 and H.R. 4894 differ with respect to the conditions under which a reliance party is
exempted from liability for statutory damages and attorney's fees. S.2368 provides that these remedies
will be available against reliance parties only in respect of acts committed after both January 1 , 2000
and actual service of notice of intent to enforce a restored copyright. This approach provides a degree
of certainty to both the copynght owner and the reliance party.

In contrast, the approach set forth in H.R. 4894, as revised on August 8, 1 994, applies a
variation of section 412 of the Copyright Act to reliance parties. This approach injects some elements of
uncertainty into the analysis. Moreover, Section 201 (d)(2) of H.R. 4894 leaves open the possibility
that reliance parties would be liable for acts taking place during the grace period if such acts continued
after that time.

Both bills have similar provisions relating to constmctive notice of intent to enforce a restored
copynght. In both bills constructive notice can be given by filing a notice with the Copynght Office
during a 2-year penod that begins with the date of restoration. Notice filed with the Copyright Office
would be effective against any reliance party.

Both H.R. 4894 and S 2368 provide that an owner of a restored copyright can also serve actual
notice of intent to enforce the copynght on a reliance party. Such notice is effective only with respect to
the specific reliance party notified. The content of actual notice and constructive notice will differ in at
least one respect, because actual notice must identify the particular use being made by the reliance
party and no such requirement exists for constructive notice.

The major difference between the two bills on this issue relates to the precision with which the
party filing notice must identify the work. S.2368 requires more infomiation from the party filing
constmctive notice in the Copynght Office and also in the notice served on a reliance party. In addition.

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9
S.2368 provides specific guidance on the effect of restored copyright on derivative works, collective

worte and compilations. The Administration believes that the provisions of S.2368 provide

better notice and certainty to users of works subject to restored copyright and will facilitate licensing

works where necessary.

The distinctions between the enforceability of copyright against a "reliance party" and other
infringers are included in these bills to ensure that restoring copyright in works used by persons in the
United States will not constitute a compensable taking within the meaning of the 5th Amendment of the
Constitution. The Office of Legal Counsel of the Department of Justice has submitted for the record, an
analysis of the 5th Amendment aspects of S.2368. To summarize the opinion, aspects of the draft
legislation relating to the grace period, notice and immunity from liability for statutory damages and
attorney's fees lead to the conclusion that the draft legislation would not constitute a taking of private
property under the 5th Amendment. Although all of the factual instances that may develop in the future
can not be detennined at this time, the Office of Legal Counsel concluded that it knows of no set of
facts that will produce a successful Takings Qause challenge to legislation with provisions corresponding
to S.2368.

AKhough both H.R. 4894 and S. 2368 address the issue of reliance parties and the
constitutional takings issue, we believe that the approach in S. 2368 better ensures that a reliance party
will have notice of which works are allegedly infringed, greater a certainty that acts engaged in during
the grace-period will not be subject to a remedy, and more predictable exclusions for liability for
statutory damages and attorney's fees. Each of these considerations is important for those persons and
fimis that now use works in the public domain in the Unrted States.

142

10
Anti-bootleqqinq

The practice of "bootlegging" live performances of U.S. artists is a significant problem that has,
in the past, been addressed through various state anti-bootlegging laws, unfair competition laws and
common law copyright protection. While performers have been able to seek relief against acts taking
place in individual states, recourse against international trade in bootleg sound recordings has been
difficult. This trade has become-more significant as bootleggers have become more sophisticated and
also reflects the international character of performance tours. The sound recording industry estimates
that t trade in bootleg recordings amounts to billions of dollars a year.

Enacting a federal anti-bootlegging statute will supplement the current enforcement provisions in
state laws, provide some unifonnity in rights and provide right owners the possibility of preventing
imports of "bootleg" sound recordings. The absence of border enforcement against imports of "bootleg"
sound recordings tends to make enforcement of copyright against imports of pirated sound recordings
more difficult. Since the U.S. Customs Service does not nonnally enforce rights provided under various
state laws, a federal law is an appropriate and important adjunct to efforts to address global piracy of
sound recordings.

S.2368 includes both civil and criminal causes of action against bootlegging activity. AKhough
H.R. 4894 initially included only a criminal cause of action, the revision of August 8, includes only a
civil cause of action. In addition, H.R. 4894 covers music videos as well as sound recordings. The
Administration supports coverage of music videos as well as sound recordings. However, we are
somewhat concerned about the absence of a definition of "featured perfomier""particularly in the
context of a civil action, since standing to sue is a more significant issue in that context.

143

The key objective with respect to anti-bootlegging is to achieve some uniformity in the rights
provided and to ensure enforceability of those nghts against imported "bootleg" products.
Temi of Patent Protection

Finally, with respect to the term of patent protection, S.2368 reflects the Administration's
proposal to amend the patent law to provide that the term of protection will commence on the date that
a patent issues and will end 20 years from the date of the application for the patent. If a continuation
application is filed, the term would be calculated from the date of the earliest U.S. application, the
pnorrty of which is claimed. The Administration supports a provision allowing for the extension of
patent tenn for up to five years if the application has been the subject of an interference proceeding, a
secrecy order, or successful appeal from the Board of Patent Appeals and Interferences. The
Administration also supports the transition provisions and creation of a system for "provisional
applications" that are included in S. 2368.

While I will defer to my colleagues from the Patent and Trademark Office to discuss the
proposal in detail, I will make some general comments on the process for developing this approach to
implementation of Article 33 of the TRIPs agreement. There is no question regarding whether some
change in U.S. law is necessary to implement the Agreement. Since the Patent and Trademark Office,
on average, takes 18-20 months to issue a patent a term of 17 years from grant would not be
sufficiently long to meet our obligations under the Agreement.

The issue of patent temi has been under discussion in the United States at least since 1 966
when a Presidential Commission recommended adoption of a 20-year from application temi. That
discussion intensified when the negotiations on Patent; Harmonization under the auspices of the World

144

12
Intellertual Property Organization (WIPO) began in 1986 and later in the TRIPs context. In 1992, the

Advisory Commission on Patent Law Reform issued a report to the Secretary of Commerce recommending

adoption of a tenii of 20 years from the date of the first complete U.S. application and calculating the

temi from the filing date of the first complete application. Moreover, legislation has been pending in

the last 4 sessions of Congress providing for a 20-year from application term of protection.

The provisions of S.2368 are consistent with the advice received from most representatives of
the private sector over many years. While some may argue in favor of the certainty resulting from a
temn calculated from the grant of a patent, such a system encourages delay on the part of applicants. In
addition, the potential for "submanne" patents, i e., patents issuing years after a particular technology
has become the basis for an industry, would continue to create uncertainty among those finns relying
on technology that suddenly becomes subject to patent protection.
Conclusion

The Administration's proposal on implementation of the Agreement on Trade-Related Aspects of
Intellectual Property is reflected in S. 2368. We are certainly receptive to recommendations from
Congress on that proposal and H R 4894 contains many constructive approaches to this complex task.
This joint heanng will also provide an important source of additional information as we work together to
complete the task of prepanng legislation for Congressional consideration.

145
Mr. Hughes. Mr. Schroeder.

STATEMENT OF CHRISTOPHER SCHROEDER, COUNSEL TO
THE ASSISTANT ATTORNEY GENERAL, OFFICE OF LEGAL
COUNSEL, U.S. DEPARTMENT OF JUSTICE

Mr. Schroeder. Thank you, Mr. Chairman.

It is a pleasure to appear before the joint subcommittees today
for the first time, although I must say when I started work at the
Office of Legal Counsel, I did not anticipate being drawn into a
copyright and patent matter.

We, at the Office of Legal Counsel, don't claim expertise in these
areas, but we do claim some expertise in matters of constitutional
law. And at the request of the USTR, we have prepared an opinion
analyzing whether proposed amendments to the U.S. copyright law
that would restore U.S. copyright protection for certain foreign
copyrighted works would result in a taking of private property
under our fifth amendment. We have issued that opinion and sub-
mitted it as our testimony.

I was one of the principal authors of that opinion and I am here
today to answer any questions Members may have about it.

I am not going to review it in detail. I would just say that the
opinion makes three major findings.

First, the proposals we reviewed as amendments to U.S. copy-
right law, if enacted, we concluded are constitutional on their face.
Any conceivable takings problem can only arise when specific indi-
viduals, reliance parties, make specific claims based on the applica-
tion of the statute to their — the actual facts of their own situation.

Second, because of this need to have specific, concrete facts, some
of which won't even exist until the statute goes into effect and we
see what happens, and because the Supreme Court's taking analy-
sis relies on in its own words, on an ad hoc factual inquiry, it is
impossible to say with total assurance that no one would ever pos-
sess a valid takings claim.

However, third, despite this inevitable margin of uncertainty, we
conclude it is highly unlikely that such a valid claim would ever
exist, and we are aware of no facts — as opposed to hypothetical sce-
narios— that would support such a valid claim. This legislation,
which seeks to balance and adjust the competing benefits and bur-
dens of an area of economic interaction, would come to the Federal
courts with a heavy presumption of constitutionality.

Provisions of the legislation substantially soften the adverse eco-
nomic effects it would have. And some form of copyright restoration
has been under consideration by the Congress for some time.

All these factors weigh heavily in the Court's present takings
analysis in favor of the legislation. These are our basic findings. As
I say, I am here to answer any specific questions that you may care
to put to me about details of it, but I think for present purposes,
that brief summary will suffice for my oral comments.

Thank you.

[The prepared statement of Mr. Schroeder follows:]

146

Prepared Statement of Christopher Schroeder, Counsel to
THE Assistant Attorney General, Office of Legal Counsel,
U.S. Department of Justice

SUMMARY OF LEGISLATIVE PROVISIONS

Our review and discussion are based on the draft amendments to 17 U.S.C. § 104A
(Supp. V 1993) that were attached to your request for our opinion.' The draft legislation
would repeal the current version of section 104A, which was passed as a part of the North
American Free Trade Agreement (NAFTA) Implementing Act. Pub. L. No. 103-182, title
m. § 334(a), 107 Stat. 2057, 2115 (Dec. 8, 1993), and replace it with a new version of
section 104A that would implement both the NAFTA and the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPs), an agreement resulting from the Uruguay
Round negotiations.

The TRIPS Agreement requires World Trade Organization (WTO) member countries
to implement fiiUy Article 18 of the Berne Convention For the Protection of Literary and
Artistic Works (Berne Convention) (Paris revision 1971)," and to extend this protection to
sound recordings on a similar basis. The United States participated in the negotiation of the
original Berne Convention of 1886 and in each major revision since then. See generally
Melville B. Nimmer, Implications of the Prospective Revisions of the Berne Convention and
the United States Copyright Law. 19 Stan. L. Rev. 499, 500 (1967). The Berne Convention
requires any country in the Berne Union to grant the author of any work originating in the
Union the same copyright protection it grants its own nationals" works. See 1 Melville B.
Nimmer & Paul Edward Geller. International Copyright Law and Practice § 2[4], § 3[3][b][i]
(1993). The Berne Convention also provides for minimum standards for the protection of
literary and artistic works that are mandatory for all Berne Union nations and prohibits
subjecting such protection to the exercise of any formality. Nimmer, 19 Stan. L. Rev. at
499 and 510. Despite our early involvement in the negotiation of the Berne Convention, the
United States was slow to ratify and fully implement the Convention.' In 1976, the United
States amended its copyright law (the 1976 Copyright Act) to comply with many of the
requirements of the Uniform Copynght Convention (1971) and the Berne Convention (1971).
Pub. L. No. 94-553, 90 Stat. 2541 (1976). Most recently, the United States passed the
Berne Convention Implementation Act of 1988 (BCIA), Pub. L. No. 100-568, 102 Stat. 2853
(1988) (codified in scattered sections of 17 U.S.C), and formally ratified the Berne
Convention. See BCIA § 13 (declaring the Berne Convention to be in force with respect to
the United States on March 1, 1989).

' The Field Memorandum also describes the draft legislation.

' See Article 9 of the TRIPs Agreement.

' The United States had a patchwork of bilateral copyright treaties in force and had ratified other
multinational copyright conventions, including the Convention on Literary and Artistic Copyrights (1910) and
the Universal Copynght Convention (1952 and 1971).

147

Section 2(3) of BCIA declares that the "amendments made by this Act. together with
the law as it exists on the date of the enactment of this Act. satisfy the obligations of the
United States in adhering to the Beme Convention." Notwithstanding that declaration,
section 12 of BCIA provides that BCIA "does not provide copyright protection for any work
that is in the public domain in the United States." The exclusion of coverage for works in
the public domain in the United States, for reasons other than the expiration of a term of
protection, prevents owners of foreign copyrights who are otherwise able to enforce their
copyrights in a Beme Union country from enforcing such rights in the United States. You
have informed us that other parties to the Beme Convention have argued that this exclusion
in copyright protection is not consistent with the requirements of Article 18.* The draft
version of section 104 A restores fuU United Slates copyright protections to foreign works that
are in the public domain in the United States because: (1) the copyright owner failed to
comply with some formality of United States law or (2) the work emanated from a Beme
Union or WTO country with whom the United States did not have copyright relations at the
time of the work's creation or publication.

Hence, the draft version of section 104A is intended to fill a gap in our protection of
foreign works, and permits the United States to implement Article 18 of the Beme
Convention more fuUy. However, the draft legislation does not restore full enforceability all
at once with respect to "reliance parties." Instead, the draft legislation provides for notice,
several phase-in periods and other terms that are important to those who have used the
foreign works that are currently in the public domain, but whose copyrights are subject to
restoration.

The draft version of section 104A draws an important distinction between parties
who have used or relied on the foreign works that are currently in the public domain
("reliance parties") and those who have not relied upon the public domain status of those
works as of the passage of the legislation ("non-reliance parties"). A reliance party is
defined as a person who, prior to the enactment of draft legislation, (1) has engaged to a
significant extent in or authorized others to engage in any of the activities covered under
section 106 of the copyright law'' or (2) has acquired a substantial number of copies of the
work with a restored copyright or made substantial monetary investments in respect of such
work. § 104A(j). For instance, a movie distributor who has taken some foreign films that
are currently in the public domain in the United States and restored them, "colorized" them,
made copies of them, or made other substantial monetary investments in promoting them
might be a reliance party with respect to those works. Likewise, an author or publisher who
has taken a foreign poem or picture that is in the public domain in the United States (but is

Field Memorandum at 1 n.l.

' Those activities are reproducing the worlc, preparing derivative works based on it. distributing copies or
photocopies of it by sale, rental, lease or loan, and performing or displaying the work. 17 U.S.C. § 106 (1988
& Supp. V 1993).

148

protected in a Beme Union country) and included it in an anthology or a textbook may be a
reliance pany with respect to such work.

The draft version of section 104 A includes several measures that (1) ensure that
reliance parties have notice of the intc;it of the owner of a restored copyright to enforce the
right, (2) provide a grace period for continued exploitation of the work, and (3) limit
remedies available against reliance parties until the year 2000. § 104A(d). As is explained
below, these and other provisions in the draft legislation provides reliance parties substantial
opportunities to exploit their investment in the restored works.

(1) Phase-in period. The draft legislation would automatically restore United States
copyright protection for works protected in the Beme Union or WTO member countries, but
would not do so until one year after the date of entry into force of the Agreement
Establishing the WTO.' § 104A(a). Until then, reliance parties and non-reliance parties
alike could use the foreign works currently in the public domain without limitation.

Non-reliance parties are liable for any act of infringement committed on or after the
date of restoration of the copyright. § 104A(d)(l). Moreover, the full panoply of remedies
for copyright infringement are available against non-reliance parties for such acts of
infringement. Id. In addition to injunctive relief and actual damages, statutory damages and
attorney's fees are available upon compliance with the existing provisions of the copyright
law. See 17 U.S.C. §§ 502-505.

(2) Notice. To enforce a copyright against a reliance party, however, an owner of a
restored copyright must file a proper notice of his intent to do so. § l04A(d)-{e). The
owner may file a notice with the Copyright Office during a 24-month period following the
restoration of the copyright. Id. Periodically, the Copyright Office wUl publish a list of
copyrights subject to enforcement against reliance parties in the Federal Register. Id. Such
constructive notice is effective against all reliance parties. An owner of a restored copyright
may also serve actual notice on a particular reliance party. Id. This notice is effective only
against that reliance party, but may be served at any time during the remaining term of
copyright protection.

(3) Grace period after notice. After constructive notice is published in the Federal
Register or actual notice is served on a reliance party, the reliance party must stop
reproducing the relevant work or preparing derivative works that reproduce significant
portions of a work with a restored copyright. § 104A(d)(3). A reliance party may,
however, continue any other activity, such as selling off previously manufactured stock of
works, public performance and public display of the work, for a period of 12 months after
the receipt of constructive or actual notice (whichever is earlier). Id. Assuming that the
owner of a restored copyright serves actual notice on the first day that the copyright is

It is anticipated that this would be January 1, 1996. See Field Memorandum at 2 n.2.

149

restored, the reliance pany still can. for example, continue to sell or perform the protected
work without incurring liability until January 1. 1997.

(4) Limited remedies against reliance parties. Statutory damages and attorney's fees
are not available against reliance parties until the year 2000 and the receipt of actual notice
of intent to enforce the restored copyright. § 104A(d)(4). The owner of a restored copyright
may seek only injunctive relief and actual damages against a reliance party until then.
§ 104A(d). You have also informed us that:

the statement of administrative action requests courts to ensure the
proportionality of the infringement remedy and the severity of the
infringement. For example, grant of an injunction against sale of a textbook
may not be warranted to address infringement of a restored copyright in a
photograph included in the text.

Field Memorandum at 3.

As we noted above, the current version of 17 U.S.C. § 104A was enacted as part of
the NAFTA Implementing Act. The NAFTA Implementing Act became effective on January
1, 1994, Pub. L. No. 103-182, § 335(a), 107 Stat. 2116, and the renewed protections
provided to copyright owners covered by that Act automatically will become effective on
January 1, 1995. The current version of section 104A is limited to the restoration of certain
Canadian- and Mexican-produced motion picture copyrights and certain works included
therein, and thus is not as broad in its coverage as the draft version of section 104A.
However, the current version of section 104A has the same effect for the works it covers,
and therefore raises the possibility of takings claims as well. Short of repealing section 104A
altogether, there thus seems no way to avoid the Takings Clause issues raised by either
version.

Although we do not believe that either version is ultimately vulnerable to Takings
Clause challenge, the draft version of section 104A contains features that make it the easier
version to defend. The current version of section 104 A does not provide reliance parties
with the same grace period and clarification of other rights that are contained in the draft
substitute version. The longer phase-in period and grace period after notice in the draft
version of section 104 A provide additional opportunities for reliance parties to realize a
return on their investment.

150

THE TAKINGS CLAUSE OF THE HFTH AMENDMENT

The last Clause of the Fifth Amendment to the United States Constitution provides:
"nor shall private property be taken for public use without just compensation."
Contemporary jurisprudence frequently refers to this clause as the Takings Clause, see, e.g..
Yee V. City of Escondido, 112 S. Ct. 1522, 1526 (1992), and this memorandum follows that
practice.

The Supreme Court has heard cases under the Takings Clause presenting "facial"
challenges to legislation, as well as cases presenting "as applied" challenges. A successful
facial challenge requires the Court to conclude that the "mere enactment" of the legislation
constitutes a taking. Hodel v. Virginia Surface Mining & Reclamation Ass'n. 452 U.S. 264,
295 (1981). "The test to be applied in considering [a] facial challenge is fairly
straightforward. A statute regulating the uses that can be made of property effects a taking if
it 'denies an owner economically viable use of his [property]. . . .'" Id. at 295-96 (citation
omitted).

The Court has never upheld a facial challenge to a statute that merely regulates
property, or one that allocates rights and responsibilities among parties. "In the course of
regulating commercial and other human affairs. Congress routinely creates burdens for some
that directly benefit others. For example, Congress may set minimum wages, control prices,
or create causes of action that did not previously exist. Given the propriety of the
governmental power to regulate, it cannot be said that the Takings Clause is violated
whenever legislation requires one person to use his or her assets for the benefit of another."
Connolly v. Pension Benefit Guaranty Corp.. 475 U.S. 211, 223 (1986). The reason for the
failure of facial challenges in such cases is simple: it is impossible to ascertain the economic
impact of such legislation until specific applications are considered.

The draft legislation falls within the description of general regulatory legislation
enunciated by Connolly: it creates a cause of action for copyright violation for some works
that were previously in the public domain and not subject to such a cause of action. It will
survive a facial challenge.

"As applied" review considers the claim of a particular party who asserts he or she
has been deprived of property as a result of the application of the statute to him or her
specifically. The judgment is limited to the party before the court, and even a successful
challenge does not affect the overall validity of the legislation. When conducting such
review, economic impact remains a significant consideration, although it is no longer the
exclusive focus. Because economic impact depends upon the specific facts of a claimant's
situation, it is impossible to conclude with total certainty that all such "as applied" challenges
will fail without knowing in full detail the entire universe of potential cases. Indeed, the

151

Court itself has frequently heard a Takings Clause case only to find the matter to be not ripe
for final determination because the claimant has failed to exhaust all necessary procedures for
fixing the actual economic impact of the legislation on his or her property. E.g.. Williamson
County Regional Planning Comm'n v. Hamilton Bank. 473 U.S. 172 (1985).

Contributing further to the uncertainty, the Court has not articulated a comprehensive
formula for determining when a taking occurs under the Clause. Despite this, by examining
what we can surmise about the likely potential claims in light of recent decisions of the
Court, we can say with a considerable degree of confidence that a successful claim on
Takings Clause grounds is highly implausible.

As a necessary preliminary to this examination, we must have clearly in mind what
"property" might allegedly be taken by the draft legislation. As your memorandum
observes, "[a] work in the public domain in the United States is by definition not the subject
of an intellectual property right in this country," Field Memorandum at 2, so no person in
this country can currently have any property right in the works whose copyrights may be
revived under the draft legislation. Hence no claimant can allege a Fifth Amendment
violation on the basis of a direct propeny interest in such works.

Although the draft legislation may regulate some other kinds of property interests, not
all interferences with property interests trigger the Clause. As the Court has recently said,
"[t]he Fifth Amendment's Takings Clause prevents the Legislature (and other government
actors) from depriving private persons of vested property rights except for a 'public use' and
upon payment of 'just compensation.'" Landgraf v. USI Film Products. - U.S. -, 114
S. Ct. 1483, 1497 (1994) (emphasis added). Individuals who have simply anticipated using
the works whose copyrights may be revived have not acquired any vested rights protected by
the Clause. It is also quite possible that even individuals who have made some investments
in anticipation of using such works have not acquired any vested rights, either. Such
individuals would be analogous to landowners who acquire property adjoining land dedicated
by statute for use as a public park, after which time the government reconsiders what use
would best serve the public interest and determines to put the land to other uses. In such a
case involving a portion of Rock Creek Park, the Supreme Court ruled that the original
dedication did not grant the neighbors any property interest. "[TJhe dedication of the park, a
declaration of a present purpose, does not imply a promise to neighboring land-owners that
the park would be continued in perpetuity." Reichelderfer v. Quinn. 287 U.S. 315, 321
(1932). This result was reached despite the fact that the statutory change undoubtedly
diminished the value of the landowners' property.

While the Court has not articulated a standard for determining when property rights
vest, we believe that the question of when ownership over particular copies of works in the
public domain vests may well be decided by analogy to the principles regulating acquisition
of wild animals, or ferae naturae. Animals at large in the public domain are acquired by
individuals under the rule of capture; that is, by being reduced to possession. S^, e.g..
Pierson v. Post, 2 Am. Dec. 264 (Sup. Ct. NY, 1805); s^ also International News Service

152

V. Associated Press. 248 U.S. 215 (1918) (recognizing a "quasi-propeny" interest in news
gathered by the AP sufficient to allow it to prevent copying until its commercial value as
news had passed away).

For purposes of responding to your request, it is unnecessary to delineate the criteria
for vesting in greater detail, but in our preliminary view the draft legislation's distinction
between non-reliance parties and reliance parties constitutes a threshold test in marking a
boundary between parties with non-vested interests and those with vested interests that is
consistent with the rule of capture. Non-reliance parties have no vested property interests in
the works, and we do not discuss them further. However, many reliance parties have
"captured" the work by performing one of the activities covered under section 106 of the
copyright law,' or by acquiring a substantial number of copies of the work or perhaps by
making substantial monetary investments in resf)ect to such work. This memorandum
assumes that such parties have vested rights, not in the work itself, which is impossible, but
rather in those specific copies or renditions of it that they have reproduced, distributed,
performed, displayed, acquired, incorporated in or used to prepare derivative works, and that
some parties may have vested rights in investments made to enable them to capture the work
in these ways.

Assuming that reliance parties have property protected by the Takings Clause, that
still does not conclude the necessary analysis of the property. This is because the Court's
analysis of economic impact will concentrate on the percentage of the economic value of the
property that has been taJcen away by the legislation, and not on the absolute value of the
diminution. Thus, what counts as "the property" for purposes of determining the percentage
diminution is of obvious importance. The problem of specification is made acute by the fact
that property can be both physically divided into different parcels and also conceptually
divided into different interests or rights using the now standard treatment of property as a
bundle comprised of a number of sticks, or rights.

We conclude that in any litigation brought by reliance parties under the draft
legislation, the Court would take as the relevant starting point the property "as a whole,"
which in this case would mean the entire set of copies of derivative works purchased or
created, or the entire investment made in order to exploit the availability of the public
domain works (if that investment is otherwise sufficient to create a vested right).

In the Court's recent Takings jurisprudence, this so-called nondivisibility principle
was announced in Penn Central Transportation Co. v. New York City. 438 U.S. 104 (1978).
Some observers may argue that it was not followed in two recent decisions, Dolan v. City of
Tigard. -- U.S.--, 62 U.S.L.W. 4576 (June 24, 1994) and Nollan v. California Coastal
Comm'n. 483 U.S. 825 (1987), and that it was cast in doubt by a footnote in Lucas v. South
Carolina Coastal Council. 112 S. Ct. 2886, 2894 n.7 (1992). Both Dolan and NoUan

' See Note 7, infra.

153

in\ol\ed a governments attempt to acquire legal title to either an easement or a fee simple
interest in a discrete portion of a larger parcel by conditioning the grant of a permit upon the
conveyance of such an interest. Any deviation from the nondivisibility principle in the
context of real property litigation may well be limited to such circumstances, in which the
government does "take" property in the quite literal sense of acquiring formal legal
ownership and title to it, and not extended to situations in which the claim is that a regulation
of the use of real property amounts to a taking. In any event, there are solid reasons to
believe that the Court still observes the nondivisibility principle in cases involving the
regulation of personal property. Most significantly in this regard, the principle was
expressly reaffirmed by the Court a year after Lucas in Concrete Pipe and Products of
California. Inc. v. Construction Laborers Pension Trust for Southern California, 113 S. Ct.
2264 (1993).

Concrete Pipe involved an employer's challenge to the Multiemployer Pension Plan
Amendment Act that required it to make additional pension contributions that were not
required under the former law. The Court declared that "a claimant's parcel of property
[cannot] first be divided into what was taken and what was left for the purpose of
demonstrating the taking of the former to be complete and hence compensable." Concrete
Pipe. 113 S. Ct. at 2290. See also Connolly. 475 U.S. at 225 ("This interference with the
property rights of an employer . . . does not constitute a taking requiring Government
compensation . . . [even though] there is no doubt that the Act completely deprives an
employer of whatever amount of money it is obligated to pay to fulfill its statutory
liability"). In fact, we are aware of no case involving personal property in which the
Supreme Court has disregarded the nondivisibility principle, and thus conclude that the court
would observe it in litigation under the draft legislation as well.

We shall assume from here on that some reliance party has suffered a diminution in
value in property protected by the Takings Clause as a result of the reinstitution of copyright
protection under the proposed section 104A. This alone is still far from sufficient to
establish a claim. Justice Holmes recognized in the very first regulatory taking case that:
"Government hardly could go on if to some extent values incident to property could not be
diminished without paying for every such change in the general law." Pennsylvania Coal
Co. V. Mahon, 260 U.S. 393, 413 (1922). This basic point has been restated many times,
and is especially well put in Andrus v. AUard. 444 U.S. 51, 65 (1979):

Suffice it to say that government regulation -- by definition - involves the
adjustment of rights for the public good. Often this adjustment curtails some
potential for the use or economic exploitation of private property. To require
compensation in all such circumstances would effectively compel the
government to regulate by purchase.

The Court has thus clearly indicated that some degree of regulation for the benefit of the
common good does not implicate the Takings Clause, which "preserves governmental power
to regulate, subject only to the dictates of 'justice and fairness.'" Id.; see also Webb's

154

Fabulous Phannacies. Inc. v. Beckwiih. 449 U.S. 155. 163 (1980) (noting the Couns
permissive attitude towards regulation "justified as promoting the general welfare").

The Supreme Court has very rarely held a broad regulatory action to violate the
Takings Clause. In recent years, it has also acknowledged that its Takings Clause decisions
"have eschewed the development of any set formula for identifying a "taking' forbidden by
the Fifth Amendment." Connolly. 475 U.S. at 224. Instead, the Court most frequently
employs an "ad hoc, factual inquir[y] into the circumstances of each particular case," id,
although it has announced categorical, or per se, standards in two limited types of cases. We
believe the Court would treat any claim under the draft legislation under the "ad hoc,
factual" approach, and this memorandum concentrates on it. Below, we analyze the
possibility that under very special circumstances the Court might consider using a per se
standard, and conclude that it would not.

While conceding it has no set formula for determining when government regulation
constitutes a taking, the Court also said that "[t]o aid in this determination, ... we have
identified three factors which have 'particular significance': (1) 'the economic impact of the
regulation on the claimant'; (2) 'the extent to which the regulation has interfered with distinct
investment-backed expectations'; and (3) "the character of the governmental action.'"
Connolly. 475 U.S. at 224-25 (citations omitted). Seg alsQ Keystone Bituminous Coal Ass'n
V. DeBenedictis. 480 U.S. 470, 495 (1987); Kaiser Aetna v. United States. 444 U.S. 164,
175 (1979) (the Court "has examined the 'taking' question by engaging in essentially ad hoc,
factual inquiries that have identified several factors - such as the economic impact of the
regulation, its interference with reasonable investment backed expectations, and the character
of the governmental action - that have particular significance"); Penn Central. 438 U.S. at
124. For ease of exposition in the present context, we address these considerations in
reverse order.

First, we consider the character of the governmental action embodied in the draft
legislation. The legislation reassigns to the holder of a foreign work protections under our
domestic copyright law that the work did not previously enjoy. Concomitantly, it burdens
the exercise of the property rights of the reliance party to engage in activities covered by
section 106 by requiring licensing from the restored copyright holder. If the reliance party
fails to obtain such a license, a court can, upon suit, award actual damages or enjoin the
activity.'" The legislation thus imposes burdens on the reliance party. At the same time,
the other copyright provisions of the TRIPs Agreement may work something of an "average
reciprocity of advanuge," see Pennsylvania Coal. 260 U.S. at 415, to the extent that reliance
parties will also benefit by the expanded protection of their own works and derivative works
in a larger number of countries. The Supreme Court has indicated that an "average
reciprxKity of advantage" exists if there is substantial overlap between the groups who benefit
and are burdened. Hodel. 452 U.S. at 715.

"* After the year 2000, ihe court also could award sutuiory damages and attorney's fees for acu of
infriogemeiit committed after that date.

155

E\en if the copyright provisions in the larger draft legislation were found not to v^ork
an average reciprocity of advantage, it is significant that draft section 104A does not
authorize anyone to physically invade the affected property, and it does not transfer or
authorize the transfer of the tiwnership of the property to anyone else. In several cases since
1976. the Supreme Court has held that regulations that readjust economic benefits and
burdens between private parties do not violate the Takings Clause. See, e.g.. Connolly. 475
U.S. at 222-26 (statute readjusting contract rights between pension beneficiaries and the
employer does not effect a taking); Concrete Pipe. 1 13 S. Ct. at 2289-92 (as applied
challenge to Multiemployer Pension Plan Amendments rejected on that same ground); United
States V. Locke. 471 U.S. 84, 104. 107 (1985) (extinguishment of mining claims due to late
filing not a taking; "'Legislation readjusting rights and burdens is not unlawful solely because
it upsets otherwise settled expectations.""); Usery v. Elkhom Mining Co.. 428 U.S. 1, 15-16
(1976) (retroactive liability for blacklung compensation not a taking); see also Penn Central.
438 U.S. at 124 (losses arising "from some public program adjusting the benefits and
burdens of economic life" present weak takings claims; citing the tax laws as an example of
laws that "adversely affect recognized economic values" but do not violate the Takings
Clause).

In an oft-cited law review article. Professor Joseph Sax maintained that when the
government merely adjusts the economic rights and burdens of third parties and does not
itself benefit from its regulation, compensation is not required. Joseph L. Sax, Takings and
the Police Power. 74 Yale L.J. 36 (1964). Not only has the Supreme Court expressly
adopted this position in recent years, see especially Connolly, 475 U.S. at 223-26, but the
distinction may also explain prior decisions of the Supreme Court that were couched in other
terms. See Sax. supra, at 67-71 (citing, among others. Miller v. Schoene, 276 U.S. 272,
279-80 (1928), upholding a Virginia statute requiring cedar tree owner to destroy his trees
because they produced cedar rust that was fatal to apple trees which were grown nearby; "the
state does not exceed its constitutional powers by deciding upon the destruction of one class
of property in order to save another").

In Connolly, the Supreme Court explained this principle in general terms:

In the course of regulating commercial and other human affairs, Congress
routinely creates burdens for some that directly benefit others. For example,
Congress may set minimum wages, control prices, or create causes of action
that did not previously exist. Given the propriety of the governmental power
to regulate, it cannot be said that the Takingfsl Clause is violated whenever
legislation requires one person to use his or her assets for the benefit of
another. In Usery . . . , we sustained a statute requiring coal mine operators to
compensate former employees disabled by pneumoconiosis, even though the
operators had never contracted for such liability, and the employees involved
had long since terminated their connection with the industry. We said: "[0]ur
cases are clear that legislation readjusting rights and burdens is not unlawful
solely because it upsets otherwise settled expectations." • • • This is not to

156

sa> ihal Lontraciual rights are never property rights or thai the Govemmeni
may always take them tor its own benefit without compensation. But here, the
United States has taken nothing for its own use. . . . That the statutory
withdrawal liability will . . . redound to the benefit of pension trusts does not
justify a holding that the provision violates the Taking[s] Clause and is invalid
on its face. • • • This interference with the property rights of an employer
arises from a public program that adjusts the benefits and burdens of economic
life to promote the common good and, under our cases, does not constitute a
taking requiring Government compensation.

Connolly. 475 U.S. at 223-25 (emphasis added; citations omitted).

Cases like Connolly and Concrete Pipe, which was decided just last year, indicate the
vitality of the principle that laws adjusting the benefits and burdens of economic life among
private parties are analyzed deferentially by the Court and have almost never been found to
constitute a taking, in contradistinction to laws that require the actual deeding over of
interests in property as a condition of governmental approval, where Nollan and Dolan
indicate the Court is employing a more searching review."

We next consider the degree to which the draft legislation would "interfereQ with
[reliance parties'] reasonable investment-backed expectations." At least since the original
Berne Convention of 1886 Americans should have been aware that the United States was
interested in entering into a convention that fully protected other nations' copyrighted works.
Long before the United States formally passed the BCIA in 1988, it was known that the
United States was moving toward implementation of the Berne Convention. See, e^,
Melville B. Nimmer. Implications of the Prospective Revisions of the Berne Convention and
the Unites States Copyright Law. 19 Stan. L. Rev. 499, 547-54 (1967) (noting the United
States almost ratified the Berne Convention in the 1930s during a period of isolation and
predicting that the United States would eventually implement the Berne Convention). Indeed,
Professor Nimmer argued in 1967 that a "significant" reason to ratify the Berne Convention
was to enjoy the "Retroactive Application of Convention Protection," by which "protection
must be accorded to all works which on the effective date of the Convention are not in the
public domain in the country of origin of the works, even if on such date the works had been
in the public domain in the country in which protection is claimed." Id. at 551 (emphasis in
original). This eminent authority on American copyright law concluded his 1967 article with
the following prediction:

" The Department of Justice also has relied on this distinction in our advice to Congress: "It is well-
settled that governmental regulations pursuant to a valid exercise of the police power that merely readjust
economic burdens and benefits in a manner rationally related to a legitimate public purpose are generally
immune from Fifth Amendmem challenge." See, e^. Letter to Honorable Chalmers P. Wylie, Ranking
Minority Member, House Committee on Banking, Finance and Urban Affairs, from Carol T. Crawford,
Assistant Attorney General at 1 (June 12, 1989) (citing Supreme Court cases).

157

The last decade has seen a veritable revolution in technological means
for the reproduction and dissemination of literary and artistic works. We have
not yet seen the end of this scientific leap forward, but already such devices as
electrostatic copiers and photoduplication machines, video tape recorders,
television antenna systems, computers, and similar developments make clear
that future adjustments of copyright law will be essential if the community
control we call law is to keep pace with the march of science. Whatever such
change may be, one can predict with some certainty that their shape and
direction will in no small measure be determined by the collective counsel of
the Berne Union. It can hardly be doubted that it is in the interests of the
United States that its voice be heard and bear proper weight in the Berne
deliberations of the future relating to these and other crucial copyright
questions.

Id. at 553-54.

Moreover, it should have been apparent to anyone following the debates over the
international protection of copyrights during this period that something very similar to draft
section 104A would be passed to provide more vigorous implementation of the Berne
Convention.'" Indeed, United States copyright owners have been forceful proponents of this
international order because they have much to gain by the protection of their works in other
nations who have not yet implemented Article 18 of the Berne Convention. Once again,
Professor Nimmer argued in his 1967 article that "Retroactive Application of Convention
Protection ... is of the greatest significance to the vast number of United States authors who
published their works in the United States . . . prior to the effective date [of a convention to
which the United States is a party]." Id. at 551-52 (pointing out that a vast number, perhaps
a majority, of works protected by United States law were not protected in the United
Kingdom despite the fact that both the United States and the United Kingdom were parties to
the Universal Copyright Convention). "Thus, even with respect to countries already party to
the Universal Copyright Convention, accession to the Berne Convention would add
considerably to the substantive rights enjoyed by the United States authors." Id. at 552.

At the time Congress was debating the BCIA, it reserved the issue of removing works
from the public domain. See BCIA § 12; S. Rep. No. 352, 100th Cong., 2d Sess. 48
(1988). Although it could be argued that this is evidence that the United States would fail to
provide protection for works in the public domain, we believe that the courts would reject
such a conclusion as unreasonable. Instead, the congressional debate provided further notice
that the United States might well protect such works after further study. Sge H.R. R^^p. No.
609, 100th Cong., 2d Sess. 51-52 (1988) ("we remain persuaded that any solution to the
question of retroactivity can be addressed after adherence to Berne when a more thorough

'- Nothing short of protecting copyrights in foreign works against al] other parties can afford such holders
the protection required under the Berne Convention. A law that allowed reliance parties to continue to exploit
the subject works would enable reliance parties to reproduce the subject works with impunity and completely
undercut the actual copyright owner, while perhaps making a super-competitive profit.

158

examination ot Constitutional, commercial and consumer considerations is possible"). Given
that most other parties to the Berne Convention believed that il was essential for the United
States to enact legislation similar to section I04A. we question the reasonableness of any
investment-backed expectations that such legislation would never be passed.

The economic impact of the legislation on a particular claimant will be the final
significant element in the Court's analysis. As previously indicated, it is impossible to know
the economic impact on any reliance party before an actual claim is presented.'^ However,
we can draw two conclusions, one from the Court's decisions, the other from an
understanding of how the legislation works. First, anything short of a showing of complete
loss of economic value of the entire property whose use is affected by the reinstitution of the
copyright should fail to establish a takings claim. Second, it is almost inconceivable that
there could be a situation in which a reliance party would in fact suffer such a complete loss.
These two conclusions, combined with the consideration of the other two elements of the
Court's ad hoc inquiry, lead to another conclusion: we currently know of no facts that
would support a valid claim.

The Supreme Court has recently reaffirmed the principle that a "mere diminution in
the value of property, however serious, is insufficient to demonstrate a taking." Concrete
Pipe. 113 S. Ct. at 2291.'* Previous cases take the same view. See, e.g., Andrus, 444
U.S. at 66 ("a reduction in the value of property is not necessarily equated with a taking.
. . . [L]oss of future profits -- unaccompanied by any physical property restriction —
provides a slender reed upon which to rest a takings claim"); Penn Central. 438 U.S. at 131
("uniformly reject[ing] the proposition that diminution in property value, standing alone, can
establish a 'taking'") (citing cases where there was a large diminution of value); Goldblatt v.
Hempstead. 369 U.S. 590, 594 (1962) (upholding restrictions on owners of gravel pits that
substantially reduced the value of the land); Everard's Breweries v. Day. 265 U.S. 545, 563
(1924) (upholding federal prohibition law as it applied to existing stocks of liquor); Jacob
Ruppert. Inc. v. Caffey. 251 U.S. 264, 302-03 (1920) (same; "there was no appropriation of
private property, but merely a lessening of value due to a permissible restriction imposed
upon its use"); Hadacheck v. Sebastian. 239 U.S. 394 (1915) (prohibition on production of
bricks on land with a valuable bed of clay did not constitute a taking even if it reduced the
value of the land by 87.5%); Mugler v. Kansas, 123 U.S. 623 (1887) (upholding prohibition
of sale of intoxicating liquor).

Given the operation of the draft legislation, it is hard to fathom how a reliance party's
property could be rendered completely valueless by the legislation, so that all conceivable

" Indeed, a takings claim probably will not be ripe until the reliance party has exhausted all efforts to
obtain a license or fix the amount of damages in a court action, or unless the court has issued a pennanent
injunction against further acts of infringement because, until these steps have been taken, the economic impact is
unascertainable.

" It is important to note that Concrete Pipe was decided after Lucas, in which the Court stated that a
regulation that rendered a parcel of land completely valueless amounts to a compensable physical appropriation.
Below, we address the possibility that Lucas's treatment of complete loss of value would apply here.

159

cases that ma> arise oughi to be cases of "mere diminution." and thus uithm the pnnciple
just cited. In the case of" a reliance pany who has used the work to make a derivative work,
or in some other way has employed copies of a work in a manner that would require
licensing under section 106, the draft legislation contains several features that guarantee the
reliance party an opportunity to gain economic returns. As described above, the reliance
party will have a year after the legislation's enactment during which he can continue to make
copies or engage in other Section 106 activities. After that, he will have a minimum of one
year in which he can continue all such activities, including selling his derivative works,
excepting only that he cannot make additional copies. Even after that time, the legislation
provides only for actual damages or an injunction to be awarded in a case of successful
litigation for breach of copyright until the year 2000, and it is conceivable that in some cases
a coun would award only a manageable amount of damages rather than issue an
injunction." In other words, reliance panies have a significant amount of time during
which they can liquidate their existing copies.'*

" The Supreme Court recently instructed that, in cases involving parody, "courts may also wish to bear in
mind that the goals of the copyright law. 'to stimulate the creation and publication of edifying matter.' are not
aluavs best served by aulomalically granting injunctive relief when parodists are found to have gone beyond the
bounds of fair use " Campbell v .^cuff-Rose Music. Inc., 114S. Ct. 1164. 1 171 n. 10 ( 1994) (citation omitted;
noting that 17 U S C. § 502(a) provides a court with discretion in ordering such an e<)uitable remedy). The
Supreme Court cited w.ith approval Abend v MCA. Inc.. 863 F.2d 1465. 1479 (9lh Cir. 1988). affd sub noni.
Sieuart v. Abend. 495 L' S. 207 (1990). which the Court charactenzes as finding 'special circumstances" that
would cause "great injustice" to defendants and "public injury" if an injunction were to issue. Campbell, 114
S Cl. at 1171 n. 10. The facts of Abend involved an erroneous but reasonable belief by the defendants that they
had a license to continue to use a short story in a film being re-released. The Ninth Circuit noted that:

An injunction would also effectively foreclose defendants from enjoying legitimate profits
derived from exploitation of the new matter' comprising the derivative work, which is given
express copynghl protection by section 7 of the 1909 Act. Since defendants could not possibly
separate out the new matter" from the underlying work, their right to enjoy the renewal
cop\ right in the derivative work would be rendered meaningless by the grant of an injunction.
W'e also note that an injunction could cause public injury by denying the public the opportunity
10 view a classic film for many years to come.

Abend. 863 F 2d at 1479 (emphasis in original; finding that in such special circumstances "damages or a
continuing royalty would constitute an acceptable resolution for infringement"). See also Universal City Studios
v. Sony Corp. of America. 659 F. 2d 963. 976 (9th Cir. 1981), rev'd on other grounds, 464 U.S. 417 (1984)
(same; relying on 3 Melville B. Nimmer. Nimmer on Copyright § I4.06[B] (1981)). A reliance party who uses
a restored work such as a poem or a picture in a much larger anthology or textbook may present an analogous
"special circumstance." Although such a reliance party could not argue that he had a reasonable belief that he
could continue to use the work subject to the restored copyright, the equities are arguably similar to the Abend
case and the Ninth Circuit's reasoning in Abend regarding the non-severability of the derivative work and the
harm to the public due to the loss of the anthology or textbook also may apply with equal force. Finally, the
statement of administration action accompanying the draft version of section 104A also requests courts to follow
these decisions to "ensure the proportionality of the infringement remedy and the severity of the infringement."

" These phase-in provisions have constitutional relevance because they bear on the economic impact of the
draft legislation on the reliance party's property taken as a whole. Several lower court decisions have held such
phase-in periods relevant in assessing the constitutionality of legislation banning billboards, which typically
impose more severe restrictions than does the proposed section 104A, by requiring the complete removal of the

160

To he ^urc. .1 reliance pan\ nia\ luse made iinesimcms agaiiiNi \Oiicli he was ho(X'Uil
of aeeaiing returns for a longer period. For example, someone may tia\e eolon/ed a foreign
mo\ie whose copyright is to be reinstated under the draft legislation. Notwithstanding those
expectations, two years is still a significant w indow of opportunity for exploiting the
investment.

A harder case would be presented if there were circumstances under which the mere
knowledge that after two or so years the reliance party would no longer be free to market
copies of his own product resulted in that product losing all market value immediately.
Frankly, we are not aware of any facts that would give rise to such a result. Even in such a
case, it is not clear that the legislation would deprive a reliance pany of all economic value,
and any detemiination one way or the other would have to await the full exploration of
options available to the pany. One significant option would be to seek licensing from the
copyright holder, which would authori2e continued sale and thus restore the market value of
the works (albeit w ith some of the proceeds now going to the copyright holder as a licensing
fee). Should a copyright holder refuse to license, a reliance pany would retain the further
option of seeking a court determination of damages for copyright infringement, which would
have the same functional effect as a license.

Only in the case of both a refusal to license and a court injunction against distributing
the reliance party's work would a reliance party appear to be without options in the
speculative situation under consideration. Were such an implausible case to arise, some may
argue that the claim would fall within the categorical rule of Lucas. In Lucas, the Court

billboards, and thus debtroying the property. Still, "amortization periods" in such legislation, which allow a
billboard owner a penod of time to continue to earn a return on his or her investment, mitigate the effects of the
ban and ha\e constitutional relevance. One district court summarized the decisions as follows:

Courts generally have held that an amortization clause may sufficiently mitigate the
effect of the challenged ordinance to protect it from a takings clause attack, if the clause is
reasonable in the light of the nature of the business of the property owner, the improvements
erected on the land, the character of the neighborhood, and the detriment caused the property
owner.

Georgia Outdoor Advertising, Inc, v. City of Wavnesville. 690 F. Supp. 452. 456. 458 (W.D.N.C. 1988)
(considering an amortization clause of four years), vacated. 900 F.2d 783. 786 (4th Cir. 1990) (clarifying that
an amortization provision cannot be viewed in isolation and does not "automatically immunizejj the ordinance
from a takings challenge"). See also Naegele Outdoor Advertising. Inc. v. City of Durham. 844 F.2d 172. 177
(4th Cir. 1988) ("A majority of courts that have considered amortization periods of various lengths have
approved them as a means of enabling an owner to recoup or minimize his loss"), on remand. 803 F. Supp.
1068. 1077-78 (M.D.N.C. 1992) (discussing factors relevant to the reasonableness of the amortization period),
affd. 19 F.3d 11 (1994); Major Media of the Southeast. Inc. v. City of Raleigh. 792 F.2d 1269. 1273 (4th Cir.
1986) {"Such amortization provisions have generally been held by courts not to necessiuie additional
compensation, if they are reasonable/ affirming summary judgment for the City on the reasonableness of
amortization period), cert, denied. 479 U.S. 1 102 (1987); J.F. Ghent. AnnoUtion. Validity of Provisions for
Amortization of Nonconforming Uses. 22 A.L R.3d 1134. 1139 (1968) (slating the majority nile that
"provisions for the amortization of nonconforming uses are valid if they are reasonable").

161

announced that a regulation that "denies all economically beneficial or producti\e use of
land" constitutes a ^SI i^ taking of property under the Fifth Amendment, unless the
regulation simply articulates a restrictions that "inhere in the title itself, in the restrictions
that background principles of the Slate's law of property and nuisance already place upon
land ownership." 1 12 S. Ct. at 2893, 2900. Thus deprivation of all economic value -- or
what the Court termed a "total taking" -- constitutes one of two categorical tests the Coun
has applied in Takings litigation. '^

At this time, we think it likely that a "total taking" of personal property would not be
treated as a gei se taking. Lucas was a case about real property, and the majority opinion
itself drew a Takings Clause distinction between real and personal property: "[I]n the case
of personal property, by reason of the State's traditionally high degree of control over
commercial dealings, [the property owner] ought to be aware of the possibility that new
regulation might even render his property economically worthless (at least if the property's
only economically productive use is sale or manufacture for sale), see Andrus v. Allard. 444
U.S. 51, 66-67 (1979)." Lucas. 112 S. Ct. at 2899-2900.

In citing Andrus with approval, the Court referred to a decision sustaining laws that
prohibited the sale of parts of protected birds, including the bald eagle, against claims

■" The other ger se Takings Clause violation occurs when government regulation amounts to a "permanent
physical occupation" of real property. The Supreme Court has also treated government action that amounts to a
complete physical appropriation of property (whether for its own use or a public use) differently from regulatory
action that merely limjis property owners' use or enjoyment of their property. In Kaiser Aetna and Lorelto v.
Teleprompier Manhattan CATV Corp.. 458 L'.S. 419 (1981), the Court ruled that the actual appropriation of an
interest in real property constituted a ger se compensable Takings Clause violation. Kaiser Aetna. 444 U.S. at
178-80 (government's imposition of navigational ser\irude requiring public access to previously private pond
effected a taking); Loretto. 458 L' S at 426, 435-36 (finding that "permanent physical occupation" of property
with cable television boxes and wiring "authonzed by government is a taking without regard to the public
interests that it may serve"). However, the Court carefully distmguished Kaiser Aetna and Loretto. as cases
involving "actual physical invasion" of private property, from the regulatory takings decisions in Penn Central
and Andrus. See Kaiser Aetna. 444 US at 180. accord Loretto, 458 US. at 426, 432-33. Indeed, the Loretto
Court emphaticaJlv stated in its conclusion that it did not question the "substantial authority upholding a State's
broad power to impose appropriate restrictions upon an owner's use of his property." 458 U.S. at 441
(emphasis in original).

There can be no serious argument that draft section 104A would work a physical appropriation or
occupation of any reliance party's property Quite simply, the government is not going to physically
appropriate any of the reliance parties' private property (for its own use of for the public at large). See
Connolly, 475 US at 225. Just like the owners of protected bird parts in Andrus. no part of the reliance
parties' property will be taken and used by someone else and reliance parties could continue to use or enjoy
their property themselves without significant restrictions. See Andrus. 444 U S at 66 ("In this case, it is
crucial that appellees retain the rights to possess and transport their property, and to donate or devise the
protected birds"). See also Connolly. 475 US at 225 ("with respect to the nature of the governmental action,
we already have noted that, under the Act. the Government does not physically invade or permanently
appropriate any of the employer's assets for its own use"). Thus, the £er se approach of Loretto will not apply
here.

162

brought b\ traders in Indian artifacts that the effect was to depri\e them of their ability to
sell certain artifacts that conuined such pans, and thus to deprive the owners of substantial
commercial value of those artifacts. The Court in Andrus was unable to conclude whether
the law denied the traders all commercial value, because the record did not disclose whether
they could exhibit the artifacts for an admissions charge, for example. Still, the Andrus
Court seemed to treat that inquiry as inconsequential whatever the true facts were, because it
stated that "[a]t any rate, loss of future profits -- unaccompanied by any physical property
restriction -- provides a slender reed upon which to rest a takings claim." Id. at 66. It
characterized the case as one in which the traders retained "the rights to possess and
transport their property, and to donate or devise the protected birds," so that the fact that the
law destroyed "one 'strand' of the bundle [of property rights]" was not enough to constitute a
taking. Id.

It is difficult to say whether the draft legislation under review here is more or less
restrictive than the statutes at issue in Andrus." In any event, the draft legislation still does
leave intact all of the "strands" of property rights noted by the Andrus Court, and a reliance
party's major complaint may well be about loss of future profits. Whether or not a reliance
party's deprivation is more or less severe than the deprivation in Andrus. Lucas's express
refusal to extend its "total takings" logic to personal property suggests that even a more
severe deprivation would not be disfx)sitive. In light of our analysis of the other elements of
the Court's ad hoc analysis, we conclude there is a substantial likelihood that even a reliance
party who could make out a case of "total taking" -- and recall that we are currently unaware
of any facts that would support such a claim — would still not succeed in establishing a
constitutional violation.

CONCLUSION

In summary, the draft legislation you have asked us to review is constitutional on its
face. Challenges to its application to particular reliance parties, on the ground that it violates
the Takings Clause, will not be ripe for adjudication untiJ the specific facts of individual
applications can be marshalled. However, from what we know of the operation of the
legislation and the possible reliance parties under the legislation, we know of no set of facts
that will produce a successful Takings Clause challenge to the draft legislation.

" Although a reliance party could not show a colorized movie and charge an admissions fee without a
license after the phase-in and grace periods expired, no commercial transaction is ever prohibited absolutely as
was the case in Andrus.

163

Mr. Hughes. Thank you, Mr. Schroeder.

Mr. Lehman, why did the administration determine that in com-
plying with the GATT agreement, it would adopt the 20-year term
from filing as opposed to the greater of a 20-year term from filing
or 17 years from grant?

Mr. Lehman. Well, Mr. Chairman, the GATT TRIPs agreement
is about trying to achieve both uniformity of, and a high level of
protection for intellectual property around the world. The 20 years
from filing is the international standard agreed upon by the GATT
members.

Mr. Hughes. That is the minimum standard.

Mr. Lehman. Twenty years from filing, that is a term of 20 years
from filing is the minimum international standard. There is no
country that I am aware of that has a patent term that has a mini-
mum of 20 years. As a minimum standard, you can tack on as
many additional years as you would like. Again let me point out,
Mr. Chairman, that we have to accept the fact that we are actually
extending the terms for most U.S. patents.

One group we haven't heard from, which we might hear from if
we get a little more ambitious in this, is all the people who have
an interest in the public domain. I know that you and every other
member of this subcommittee is well aware that those interested
in public domain are a very powerful and sizable group of people.
There are many people who don't like patents. There are a lot of
people who think that patents should be shorter.

Mr. Hughes. We have heard from them,

Mr. Lehman. Pardon?

Mr. Hughes. We have heard from them.

Mr. Lehman. So if we adopted a different standard, and then
permitted many people to have a lot longer patent term, I think
you would have really heard a lot of howls and screams — that is
why we agreed to the 20-year minimum standard.

I would also like to say that mention was made of hearings, and
again, I want to get the facts straight. First of all, I am the first
Commissioner of Patents, and the Clinton administration is the
first administration to my knowledge, that has ever really opened
up the process of decisionmaking in this area to the public. We
have had numerous days of public hearings including the very first
set of public hearings on the patent harmonization question.

Mr. Hughes. The claim in previous testimony that there has not
been an opportunity for public comment is not accurate?

Mr. Lehman. It is totally inaccurate. In fact, last year during the
patent harmonization hearings, where we reversed the Bush ad-
ministration policy that would have had us abandoning our first-
to-invent system, I asked every single witness — about 60 witnesses
as I recall — about the 20-year term issue. As I recall, of those 60
witnesses, some of whom have now apparently changed their posi-
tion, only one person indicated that they had a problem with this
20-year term.

Mr. Hughes. Let me follow up on term. Why does the adminis-
tration proposal then provide for patents in force to be entitled to
a term of 17 years from grant or 20 years from application, which-
ever is greater, and then not apply that prospectively?

164

Mr. Lehman. Well, Mr. Chairman, this is a piece of transitional
legislation. I think it is appropriate that people who have filed pat-
ents in reliance on the old system, have the benefit of the greater
term. It is as simple as that.

Mr. Hughes. There have been some concerns raised particularly
by the biotech industry, that grants of patents will be delayed be-
cause of unreasonable requests from the PTO for human trials
which, as you well know, could take years for some biotechnology
products to prove utility, a requirement of patentability. Is that a
legitimate concern on their part?

Mr. Lehman. Well, to the extent that that is a legitimate con-
cern, Mr. Chairman, I think that is addressed in the Patents Term
Restoration and Drug Price Competition Act that extends patent
terms specifically to deal with regulatory delay. Perhaps that act
should be adjusted if it is not addressing the concerns of industry.
I know I testified before you previously on some private patent bills
in that area. I indicated then that there may be a reason for the
committee to take a look at such concerns. As I indicated then,
however, I don't think we should screw up the whole patent system
and bring down the wrath of the public domain community upon
us. To imagine what that wrath might be, one only has to think
of the legislation needed to deal with this very discrete problem.
We have analyzed this, and, again, overwhelmingly, the facts are
that we get the patents out the door very quickly. Most patent
owners do not want to delay patent processing. Everj^hing I have
heard, and I have been around the country and talked to many
people about this, indicates that people don't want to spend 5, 6,
7, 8, and 10 years in the Patent and Trademark Office. They want
us to issue a patent as soon as we possibly can. So I am a little
surprised now to hear that some people want delay in the Patent
and Trademark Office. I understand that Congresswoman Bentley
stated that she was concerned that we might not be able to process
the patents on time. I believe, as I indicated by the figures that I
cited, that we are doing a fairly good job. I would invite Mrs. Bent-
ley, who sits on the Appropriations Committee, to work with us
and the chairman to try to get back some of the $18 million of our
fee revenue that the Appropriations Committee took away from the
inventors who paid those fees to get their patents processed, and
have now been diverted to other areas of the Federal Treasury, in
effect, as a tax on innovation. I think that is the kind of thing we
should focus on, and not spurious problems that really don't exist.

Mr. Hughes. Senator DeConcini wanted to ask the following
question of this panel. He had hoped to be here before your testi-
mony concluded.

You indicated that patent pendency is about 19 months. Some
say this is inaccurate because it is calculated from the last continu-
ation application. Can you calculate pendency from the date of the
first effective filing date to issuance?

Mr. Lehman. Well, Mr. Chairman, I can give you a more detailed
explanation of that. One of the allegations that has been made
about the 20-year term is that we are going to somehow or other
take away rights that certain people have had by using an extraor-
dinarily long patent processing time to keep their patents secret.
We have done a little bit of a study of this and we have discovered

165

627 cases in the Patent and Trademark Office from 1971 to 1993
where the patent pendency has exceeded 20 years. In one case, it
was 36 years.

Mr. Hughes. Is that the record?

Mr. Lehman. Pardon?

Mr. Hughes. Is that the record?

Mr. Lehman. That is the record.

What is interesting about many of those cases is that whereas
the pendency of the patent has gone on for that long period of time,
some of the claims have been allowed early in the process. So, in
fact, those applicants have been able to have the advantage of pat-
ent protection on some of their inventions while keeping other
claims secret in the Patent and Trademark Office. Then, their
claims are patented and emerge like a submarine, and torpedo peo-
ple in the industry who are relying on what they reasonably
thought was in the public domain — when it was not actually in the
public domain after all.

In fact, we heard a lot of testimony about this problem from the
computer software industry where we had extensive hearings in
Palo Alto last year. I think when one looks at the problem of filing
and claims, you must also look at those statistics of abusive prac-
tices as well, and we will provide you with more elaborate details
on those practices.

[The information follows:]

Recently, the Patent and Trademark Office (PTO) held hearings and solicited pub-
lic input on the use of the patent system to protect software-related inventions. We
heard from a wide range of interests, including small and large software companies,
independent software developers, patent attorneys and trade associations. Several
companies, particularly small software start-up firms from Silicon Valley, expressed
concerns over potential liability for patent infringement based on their use of "old"
or "well-known" software techniques. These individuals believe that patents have
been granted that cover such techniques, in part because the techniques were not
documented in patents or printed publications. The proposed prior use defense could
address one aspect of the problem these companies have described. It would enable
a company that had made the requisite degree of commercial use of the "old" tech-
nique under the appropriate circumstances to avoid liability for patent infringement.
It would provide this relief without requiring the company to prove that the patent
being asserted against them is invalid. Importantly, the type of evidence that could
be used to establish a successful prior use defense could encompass forms of evi-
dence that do not fit clearly within our current definitions of prior art. And while
we are unsure as to how frequently this scenario may arise, we believe the legisla-
tion would address the concerns as they have described.

Mr. Hughes. I have some other questions of both Mr. Shapiro
and Mr. Schroeder, which I will save for the next round.

The gentleman from California, Mr. Berman.

Mr. Berman of California. I wanted to ask Mr. Lehman a ques-
tion concerning the role that you play in the administration regard-
ing information infrastructure issues. The question is this, basi-
cally. As technological developments take us beyond the national
information infrastructure to a global information infrastructure,
what are the consequences for our American copyright industries
if we fail to implement Berne article 18 more generously than we
have to date?

Mr. Lehman. I think it would be very negative. Congressman.

Mr. Berman of California. Thank you.

I yield back the balance.

Mr. Hughes. Brevity is the order of the day.

166

The gentleman from California, Mr. Edwards.

The gentleman from California, Mr. Becerra.

Mr. Becerra. Let me continue with some other questions regard-
ing the patents.

Do you know how many patents, and you cited statistics in per-
centage terms, but do you have any numbers on the patents that
were issued after the 36-month period might have lapsed or the 36-
month period that we are now talking about between 17 years and
20 years?

Mr. Lehman. I will be happy to get those exact statistics for you.
First, let me give you a little bit of background on the volume of
applications the Patent and Trademark Office processes in a year.
Since I have been there, the volume has gone from a little over
190,000 applications per year to 200,000 per year. We are now re-
ceiving over 200,000 patent applications a year, and we issue about
140,000 patents a year.

The absolute number of patents where the delay in issuing the
patent would exceed the figures that I gave you, is very, very
small, particularly those instances where the delay would exceed
36 months. One thing that I think is important to realize, is that
some of the delays that presently take place occur not because of
the PTO, but because for various reasons, the patent owner volun-
tarily delays the process.

I think you can be certain that if applicants are aware that we
have a 20-year term, they are going to want to get the most out
of that 20-year term. I am also sure that to the extent that we have
pendencies that go over 36 months under the present 17-year sys-
tem, they, too, will go down under the 20-year term.

Mr. Becerra. And rather than just applying raw data on the
number that went beyond the 36-month period, if you could break
it down perhaps by those that took more than 36 months, those
that took more than 5 years, more than 7, more than 10 years, so
we have an idea of how many really are taking quite some time
to process through.

Mr. Lehman. I will, but one thing I think is very important to
understand, with respect to such figures. It is rarely because of the
Patent and Trademark Office that a patent takes that long to
issue. More often, it is because for various reasons, the applicant
has voluntarily chosen to try to drag out the application process.
In fact, what you see in these extremely long patents, is a very im-
portant competitiveness and fairness issue. One of the principal
reasons that we believe the 20-year term is good public policy is be-
cause you have people who file patent applications in the Patent
and Trademark Office at a very early stage in the development of
a particular technology, and under our current system, those appli-
cations are secret. The public will follow the technology and you
will have all kinds of people out there doing business, and coming
up with ordinary innovations, which they may not patent. Then all
of a sudden, once these technologies have started to develop in the
marketplace, the people who originally filed these early, and often
very uninformed patents, will begin to modify their claims, which
they can do in secret with the patent examiner, so they will cap-
ture these businesses that are already out there. Then they will
surface, like a submarine — what we call submarine patents — and

167

then they will go after the people who are in commercial technology
and this has become quite a lucrative business for a number of peo-
ple.

The possibility of having hearings has been mentioned. We did
have extensive hearings on a lot of things related to this in your
State of California. In fact, the hearings were held in Congressman
Edwards' hometown earlier this year, and we heard from about 100
witnesses, and we had 300 written submissions. Overwhelmingly,
one of the biggest single complaints that we got, particularly from
people in Silicon Valley and the computer software industry, was
about these submarine patents. You have people who go out and
develop computer software, and then all of a sudden they find out
that some 20-year old patent in the Patent and Trademark Office
has had the claims modified and captures the business they are in.
Now they have to go and hire a lawyer, pay a million dollars in
legal fees in order to defend themselves or else give in, have a set-
tlement, and pay off the submarine patent owner.

So I think it is very important to understand the facts and to un-
derstand what problems this legislation addresses that go way be-
yond even the advantages that we receive in global trade. This is
a win-win situation.

Mr. Becerra. What about the concerns of the universities, that
oftentimes you have individuals that are doing university research
that must submit something early before they can clearly define
what exactly that innovation might be, and work in continuation
may be jeopardized in terms of a 20-year period, versus thinking
anything that starts after the issuance and gives them 17 years
protection.

How do you address the concern of the university researcher who
has to publish, but at the same time, risks losing part of the pro-
tection under the 17-year patent system that we have?

Mr. Lehman. Well, this helps that researcher, Mr. Becerra, be-
cause as you pointed out, in the university community, the culture
supports early publication. In other words, the primary goal of the
university researcher is to advance the body of knowledge, that is
to get an article in a professional journal, a technical journal, and
so on, and so forth. Under our current and future system, and the
international system generally, if one does not apply for a patent
within 12 months of publication, then the work goes into the public
domain.

So university researchers do not have the luxury, as a general
rule, of sitting on the technology, or of keeping it a trade secret.
They have to get their discoveries out there; thus prompt and rapid
issuance of the patent in the 20-year term will give them more pro-
tection, rather than less.

Mr. Becerra. Thank you.

Thank you, Mr. Chairman.

Mr. Hughes. Mr. Shapiro, as you have noticed, one difference be-
tween H.R. 4890, the bill I introduced, and the administration's
draft is that my bill does not provide the President's proclamation
power to grant retroactive protection to works of non-Berne or
WTO members. My bill does not have such provision for a number
of reasons.

168

First of all, I am not sure such authority does not already exist
in section 104(b)(5) of the Copyright Act.

Second, even if needed and not already available, the proclama-
tion power is not required by TRIPs, and it is therefore a question-
able item to include in fast track legislation.

I am also concerned about past abuses of proclamations and cer-
tifications in other areas, and I question whether such a proclama-
tion might discourage countries from joining WTO. I also note that
your draft, unlike existing section 104 of the Copyright Act, only
requires the President to find that the foreign country provides pro-
tection, I quote, "to a similar extent," rather than as in section 104
of existing law, and I quote, "on substantially the same basis." I am
going to consider your proposal, but I would like to know how my
concerns can be addressed.

Mr. Shapiro. Mr. Chairman, I would like to respond to that and
then ask Catherine Field, who is Associate General Counsel and
has done a great deal of work in both the negotiations and the leg-
islation, to amplify my response.

Frankly, we think that the authority for the President to extend
copyright restoration to works of countries that are not yet Berne
members or WTO members is an important authority, as long as
we are getting reciprocal treatment. And I guess part of the basis
of our concern here, Mr. Chairman, and it is the flip side of the
concern that you raised, I wouldn't want to find us in a position
that to get copyright protection from countries, we felt the need to
bring some of them into the WTO earlier than they should other-
wise accede to it, China, Russia, et cetera.

I mean, from my standpoint, it is far better for us to be able to
try to negotiate on these terms of reciprocity to gain restoration
rights from those countries before they come in, rather than have
it sort of influence the accession process in a way that wouldn't be
positive. But I will let Cathy amplify a little bit on the question.

Mr. Hughes. Maybe you can address the question of whether or
not section 104(b)(5) of the Copyright Act, existing law, covers this
situation.

Ms. Field. Thank you, Mr. Chairman.

As I and the copyright experts at the Patent and Trademark Of-
fice read section 104, it is directed primarily at establishing bilat-
eral copyright relations. That is the way it has been used in the
past, and it is somewhat questionable as to whether it could be
used to extend protection for works that are now in the public do-
main.

Mr. Hughes. Do you have a legal opinion on that subject?

Ms. Field. A formal opinion?

Mr. Hughes. Yes. And if so, can you provide it to the committee?

Ms. Field. We do not have one as of now. We certainly believed
it was

Mr. Hughes. Because I would be interested in seeing a legal
opinion on that subject.

And my second question then is, what is wrong with the lan-
guage of existing law on substantially the same basis? Why the
change to a similar extent instead of on substantially the same
basis? What is the rationale for that?

169

Ms. Field. Quite frankly, we thought that language was appro-
priate in the context of Berne article 18 and the issue we were at-
tempting to address. Berne 18 does give members of the Berne
Union a fair degree of flexibility in how they implement the obliga-
tions of that agreement. That is clear from looking at how various
union members have complied with that provision. It was not our
intent to have any substantive difference from the standard that
exists in section 104 today.

Mr. Hughes. So if I hear you correctly, there is really no basis
for that?

Ms. Field. I think what we are talking about is a drafting mat-
ter, as opposed to substance.

Mr. Hughes. Let me move on. Another difference between my
legislation and the administration's draft concerns the relationship
between the 1-year sell-off period and the period in the first sale
doctrine. As I understand your draft, it would permit anyone to sell
off single copies of a work forever. My bill cuts this ability off at
the end of the 1-year period.

While I appreciate that your draft is more favorable to retailers,
I question whether it is unfair to the middlemen who have dumped
on them a large number of copies shortly before restoration. Those
middlemen don't generally sell one copy at a time. Why should they
be treated so differently?

Mr. Shapiro.

Mr. Shapiro. Again, Mr. Chairman, I would like Ms. Field to an-
swer that if she would.

Ms. Field. We have a situation where often there can be a chain
of distribution. We modeled the language in 109 after current prac-
tice in enforcement areas in other parts of the law. We thought it
was reasonable to anticipate that stock, and this is stock that has
to be produced before the date of restoration, before — excuse me,
before the date the reliance party receives notice of intent to en-
force copyright, that that existing stock have ample opportunity to
work its way through the chain of distribution, and there was par-
ticular concern about the retail level and it seemed

Mr. Hughes. My question is about the wholesaler. Isn't that un-
fair, this transition period, that is what we are talking about? Isn't
that unfair to somebody like a middleman who has a large supply
and who does not sell off individually? I know that it takes care
of the retailer. My question is, isn't that inherently unfair to a
wholesaler?

Ms. Field. Well, first of all, S. 2368 quite frankly does more for
the retailer. H.R. 4894 does nothing either for the wholesaler or the
retailer. We were trying to address a specific problem in a manner
that would not create an adverse precedent for the problems that
we see in other countries where the manufacturer is often the
wholesaler, and we didn't want to see something like this in other
countries.

Mr. Hughes. Well, I understand, but I don't know that you have
answered my question as to why we should, in this transition, treat
one group of American business people differently.

I am interested also in your view that the notices of intent be
quite detailed. Isn't this possibly a bad precedent that could be
used to hurt U.S. authors overseas, and isn't it contrary to the spir-

170

it, if not the letter, of the Berne Convention's prohibition on for-
malities?

Finally, I would like to make an observation about fast track
generally. It is my understanding that the administration is seek-
ing to include future fast track authority in the GATT fast track
bill. I have serious doubts that on the fast track, no-amendment
basis. Congress should tie itself, not be able to amend trade agree-
ments not even in existence yet.

Mr. Shapiro. Mr. Chairman, on that point, obviously there is
considerable controversy over fast track for a variety of reasons,
not the least of which is the concern that you have expressed. We
are trying to develop a broad consensus that it would be useful to
extend fast track for a limited time period with certain procedural
reforms that respond to concerns that Members of Congress have
expressed. So that, for instance, the full House or the full Senate
would get to disapprove or approve negotiating objectives before we
embarked on a negotiation.

Our concern on that score, on the score you raise, frankly, is that
while there are problems with doing it on a fast track bill, there
are also serious problems with the President not having negotiat-
ing authority and waiting until a trade bill becomes an omnibus
trade bill next year.

Mr. Hughes. I understand that. I have supported fast track au-
thority, taken my lumps over that, but doing it in a fast track bill
does have its irony.

I was interested in your statement, Mr. Schroeder, that people
in the United States should have anticipated that some day we
would grant retroactive protection, because the United States has
been interested in joining the Berne Convention, as I understand
it, since 1886. Since we didn't join it until 1989, and even then
didn't provide retroactive protection, don't you think after 100
years, people might reasonably believe that we weren't going to?

Mr. Schroeder. Well, Mr. Chairman, I think that the point we
intended to make in the opinion was not that people could antici-
pate that this was going to happen, but that it was in play. This
was an area of regulated activity where the Congress from time to
time visits questions and makes changes in the configuration of the
legal landscape bearing on the parties. Let me give you

Mr. Hughes. I understand. I didn't want to get into a big dis-
sertation. I just got a big chuckle out of that when I read that and
I thought I would share that with you; it was the only thing that
made me laugh last night.

Mr. Shapiro. Maybe we could join retroactively, Mr. Chairman.

Mr. Hughes. Mr. Schroeder, your opinion also takes a position
that a significant option to avoid a "takings" problem is a possibil-
ity of negotiations between the restored copyright owner and a reli-
ance party who created a derivative work, or in the event negotia-
tions fail, the court could award damages for copyright infringe-
ment which you say would have the same functional efi"ect as a li-
cense.

However, as I see it, the issue is not whether the reliance party
should pay the restored copyright owner, but whether the copyright
owner should have to buy out the reliance party. In other common
law countries, such as the United Kingdom, Ireland, South Africa,

171

Australia and New Zealand, the copyright owner is required to buy
out the reliance party or, failing agreement, to submit to arbitra-
tion. Does that change your opinion at all?

Mr. SCHROEDER. I think that scheme would be constitutional as
well, Mr. Chairman.

Mr. Hughes. All right, fair enough.

Well, thank you. I don't have any further questions.

Any other members seeking recognition?

If not, thank you.

Mr. Becerra. Mr. Chairman.

Mr. Hughes. Yes, Mr. Becerra.

Mr. Becerra. If I could just ask one question of Mr. Shapiro.

I think we all recognize that retroactivity is essential at some
point, hopefully sooner than later, but I don't think anyone has
really addressed the magnitude of it. I don't know, Mr. Shapiro, if
you know some numbers or just how much is at stake in this game
here, but if you happen to have some numbers, I would like you
to submit them for the record orally or in writing.

Mr. Shapiro. Mr. Becerra, we would be happy to do that. I do
think that the numbers are of a large magnitude, but I think that
the later panel will be giving you some numbers as well that will
be — they are better in position to talk about the numbers and the
stakes in this, and as I said earlier, I do think that the failure —
I don't mean failure, but the question of implementation at this
point becomes quite critical because we are in some danger of leav-
ing our winnings on the table here if we don't move ahead.

Mr. Becerra. I know that some of the subsequent members of
the panels to come will provide some information, but I would real-
ly appreciate it if you could provide either some signoff on some of
those numbers or show us what you also believe to be the mag-
nitude, because it helps to have on the record what USTR believes
to be the magnitude, not just the industry to say that as well.

Mr. Shapiro. I understand and I will do the best I can in that.
In this area, we oftentimes find that the industry numbers are
things we have to rely on as well, but we will pool our knowledge
and try to give you the best numbers.

[The information was not provided.]

Mr. Becerra. Thank you.

Mr. Berman of California. Would you yield just on that question?

Mr. Becerra. Of course.

Mr. Berman of California. But as we look at numbers, I mean,
when you talk about leaving winnings on tables, I assume you
mean the winnings are the benefits of having the other countries
do what they got to do under this agreement for — that exceeds
what it will cost us to provide retroactive protection in — under
American law for foreign works.

Mr. Shapiro. Yes. I mean, from everj^hing we can ascertain, it
is not a close question. The benefits for our industries abroad far
exceed the costs that would be incurred, but I think we have tried,
and I know the chairman's bill has tried, to deal with the question
of reliance parties.

I mean, we think it is important that the foreign rights holders
have their copyrights restored, but also that those who have relied

172

on them get treated fairly. I think our proposal does that, but at
the bottom line, this is an enormous benefit for U.S. industries.

Mr. Berman of California. And if you will continue to yield for
one last question, not question, just really a comment.

When you talk about leaving the winnings on the table, in this
particular area, you really ought to say the winnings, such as they
are.

Mr. Shapiro. Such as they are.

Mr. Hughes. Well, thank you very much.

I want to congratulate each of the witnesses. Their statements
were excellent, comprehensive.

I know that you abbreviated your remarks here today, but you
have been very, very helpful and we look forward to working with
you to resolve what other issues have not been resolved. But I
think we are all moving in the right direction. Thank you very
much.

I wonder if, before calling my next panel of witnesses, I could get
staff to move some of these chairs so some of the ladies can per-
haps have a seat.

We will now hear testimony from three witnesses on the con-
stitutional issues raised by the retroactivity provisions.

Our first witness is Irwin Karp. Mr. Karp has been active in
copyright for over 30 years and has testified before Congress many,
many times. He appears today on behalf of the Columbia Univer-
sity School of Law "CLA" Study on United States Implementation
of Article 18 of the Berne Convention.

The second witness is Prof. Shira Perlmutter, from the Catholic
University School of Law where she teaches, among other subjects,
copyrights and trademarks. She is the author of a number of arti-
cles on copyright, including being the coauthor of an article on fair
use that was repeatedly cited by the Supreme Court in its recent
July opinion in Campbell v. Acuff-Rose Music.

Our third witness is Mr. Eugene Volokh of the UCLA School of
Law where he teaches constitutional law and copyright law. Profes-
sor Volokh has a fascinating background. He was bom in Kiev. He
wrote a computer program at the age of 12 that proved to be wildly
successful. He set up a corporation where he continues to market
this and subsequent programs he has written.

At the age of 15, he graduated from UCLA with a bachelor of
science degree in math and computer science. He then devoted
himself to his computer programming, becoming an internationally
recognized expert on Hewitt Packard 3000 computers. He was re-
cently a law clerk for Supreme Court Justice Sandra Day O'Con-
nor.

We welcome your testimony. We have your statements, which,
again, are excellent, and without objection, we are going to put all
your statements in the record. We have read them and we would
like you to summarize so we can get right to the questions.

Why don't we begin with you. Professor Volokh.

Welcome.

173

STATEMENT OF EUGENE VOLOKH, ACTING PROFESSOR OF
LAW, UNIVERSITY OF CALIFORNIA AT LOS ANGELES, LOS
ANGELES, CA

Mr. VOLOKH. Mr. Chairman and members of the subcommittees,
in my opinion, the proposed copyright registration provisions
would, under some circumstances, work takings that would require
the Federal Treasury to pay compensation. I am not, by any
means, asserting that this would happen under all circumstances,
but there are quite a few situations where I think the Government
will be on the hook for a nontrivial amount of money.

Let me briefly explain. Imagine that following a long, distin-
guished public service career, you decide to go into show biz. You
fmd a story; your lawyer assures you it is in the public domain; you
decide to make a movie based on it. So you round up the money,
you get all the production done and you eventually have a copy-
righted work.

This work is a piece of property that is of very substantial value.
You can license theaters and TV stations to show it, you can sell
videos, you can make sequels, and, if you are lucky, you can recoup
some of the millions of dollars you have sunk into it. That is the
way the movie industry, and many other intellectual property in-
dustries, operate.

The copyright restoration provisions would reduce the value of
your copyright to virtually zero. They won't just diminish it. They
will pretty much eliminate it. If you show your work anywhere
after the 1-year grace period is up, or make copies even before the
grace period is up, or exploit it in any of the ways that the movie
industry normally exploits movies, not only will you be liable for
an injunction or damages; you will be committing a crime. You
might go to prison. Your movie will be, for practical purposes, val-
ueless.

I believe that under the Supreme Court's reading of the takings
clause, this sort of situation qualifies as a so-called regulatory tak-
ing. A government regulation has deprived you of all economically
viable use of your property. This is called a regulatory taking.

Regulatory takings are uncommon in the law because usually
you have at least some use of your property allowed to you. If the
Government zones your property in some way, you can still use
your land for some purposes. But under the GATT Copyright Act,
all the economically viable use of your property has been elimi-
nated. Under the case law, I think the Government will have to
pay compensation.

Now, I can't be completely sure of this. As you know, takings ju-
risprudence is notoriously uncertain; in particular, the Office of
Legal Counsel points out that the Supreme Court has intimated
that it is possible that regulatory takings doctrine may not apply
to personal property. It might apply only to real estate.

But setting that aside — and I mentioned in my written comments
some reasons why I don't think courts will interpret the law this
way — I am afraid that the Office of Legal Counsel's opinion is un-
sound. It glosses over the tough issues and makes arguments —
such as the negotiation argument Mr. Hughes referred to and the
1-year grace period argument and the argument that it is possible
that a court will only grant damages and not an injunction — which

174

just won't work. I don't think that they would be accepted by courts
under the current state of takings jurisprudence. I would be happy
to go into that further if anybody has any questions, but I won't
go into it now because it is in my written comments.

So it seems to me there are some nontrivial takings clause prob-
lems that arise in the special context of derivative works that are
created based on works that are restored from the public domain
by the legislation.

There are also some possible problems relating to copies, espe-
cially under the Hughes' bill, rather than DeConcini's bill. The
Hughes' bill prohibition on sales after 1 year — by anybody and not
just by retailers — will, I think, go a long way toward working that
complete destruction of the economically viable use of the property
that the Court says is the hallmark of a regulatory taking.

If retailers can still sell copies after the year is up and again I
am talking here of a situation where someone has just made raw
copies rather than create a derivative work — if retailers can still
sell those copies, then at least the middleman can take his whole
stockpile and unload it to the retailers. Perhaps he'll get less
money for it, but he'll be able to get something. But if the retailers
know that after the end of the year they can't sell anything, a lot
of the stockpile will go completely unbought and will have to essen-
tially be thrown away.

Finally, let me mention one other significant point. The question
here isn't whether the law is constitutional or unconstitutional. It
is constitutional for the Government to take people's property. But
the Government is then constitutionally compelled to pay money.
So if the legislation is passed and courts conclude that it does work
taking, what will happen is that the Federal Government will be
presented with a bill, and it will have to pay it. It will be, in a
sense, an irremediable bill. Repealing the provisions or modifying
them won't take away the Government's obligations under the
takings clause. In fact, repealing them might actually incur the
Government more obligations because the foreign parties, whose
works have been restored, would now complain that the repeal has
undone all their rights.

I want to close by suggesting a couple of possible remedies for
the potential problems I've mentioned. One is choosing the DeCon-
cini version — the Senate version — rather than the Hughes' ver-
sion— the House version — ^because of the effect that I mentioned on
people who had made raw copies of the original work.

Another possibility is either exempting derivative works alto-
gether from the restoration provisions — much like derivative works
are already exempted from an author's termination right under
section 203(b)(1) of the Copyright Act— or imposing some sort of
buyout or royalty provision. Even a pretty substantial royalty re-
quirement will probably still pass takings clause muster. But, I
think, short of that, there will be some fairly serious problems.

Now, I can't even begin to predict how our trading partners
would react to these compromises. But I am fairly sure that going
with the DeConcini version rather than the Hughes' version, and
having some sort of royalty or buyout provision will almost cer-
tainly avoid any takings clause problems that might exist.

Thank you very much.

175

Mr. Herman of California [presiding]. Thank you.
[The prepared statement of Mr. Volokh follows:]

176

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368
Messrs. Chairmen and Members of the Subcommittees.

My name is Eugene Volokh, and I am Aaing Professor of Law at the University of
California at Los Angeles. I specialize both in copyright and constitutional law. In my
opinion, the proposed copyright restoration provisions will sometimes lead to takings of
private property, and will thus make the federal government liable for compensation under
the Fifth Amendment.

1. The Bills

The two bills-the Hughes Bill, H. R. 4894, and the DeConcini Bill, S. 2368— address
a serious problem: Many authors, especially foreign authors, have lost their copyrights in their
works because of certain provisions of pre-1989 U. S. copyright law. The Berne Convention
and GATT demand that these works be brought back out of the public domain and into their
authors' hands. Many think, and I agree, that this sort of restoration of rights is generally
quite fair.

The problem is that some people have justifiably relied on the public domain status of
some works, and have invested in trying to exploit them. Full restoration of the authors'
rights could lose these people— so<alled "reliance parties"— a lot of money. For instance,

177

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368

someone might have spent milHons making a movie based on a pubhc-domam book. If the
author's rights in the book were fully restored, it would be illegal for the moviemaker to do
anything with his film— show it, make videotapes of it, make sequels, or whatever else.
Likewise, someone might have made thousands of copies of a public-domain work, hoping to
sell them. If the author's rights, including his distribution right (unencumbered by the first
sale doctrine), were restored, then the copies would become unsalable.

The proposed bills accommodate reliance parties to some extent. To reassert his rights
in the work, the author must give notice (actual or construaive). Once he does this, reliance
parties can no longer make any copies of the work or of any derivative works they might have
made. They still, however, have one year in which they can continue to show, perform, and
sell previously made copies of the work and their derivative works. Under the Hughes bill,
after the year is up all rights revert to the author. Under the DeConcini bill, after the year
is up copies of the work which were made before notice' were given can still be sold, though
only one at a time.

For the copier— the person who just makes copies of a public domain work, without
creating any new work based on it— this means two things. First, he has to stop making
copies, at least until he buys a license from the author. This might mean losing a lot of his
investment in his business.

178

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368

Second, under the Hughes bill, the copies that he's already made might become almost
valueless, because a year after notice is given they can no longer be sold. Any copies that he
can't sell to consumers during that year might as well be burnt. Under the DeConcini bill, the
copies will still have value, because the reliance party can spend the year selling them in bulk
to retailers, who can then continue selling them to consumers indefinitely. Nonetheless, the
one-year time limit will probably force the reliance party to sell the copies for less than he
otherwise could have.'

Someone who doesn't just copy the original work, but produces a derivative work
based on it, is also in a difficult position. Say he makes a movie based on a public domain
book. One year after he gets notice that the book has been restored, he can no longer do
anything with that movie. He can'i show it in theaters, he can't license it for broadcasting,

1. Because the restoration provisions aren't scheduled to come into effea until January 1,
1996, careful distributors actually have an extra year to year and a half to unload their invento-
ry. Whether one counts this extra time in determining the burden the law would place on
reliance parties depends on how one views the law's notice provisions.

Under the proposed § 104A(d)(2), reliance parties are fully entitled to exploit the work
until notice is given. If notice is never given, reliance parties are allowed to keep making and
selling copies indefinitely. I imagine that for many works, long forgotten by their authors or
the authors' heirs, this would indeed happen.

Because making new copies is thus perfealy proper until notice is given, I think it's
fair to measure the burden on reliance panics by looking only at the one-year grace period
offered after notice. If you disagree with this view, then you might want to consider the law
as giving a grace period of two to two and a half years rather than just one year.

179

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368

he can't make derivative works of it. About all he can do with it is watch it himself.- And
this despite the fact that much of the derivative work might be the p.oducer's own creation,
and not the original author's.

2. The Takings Clause

What are the Takings Clause implications of each of these situations— (1) the injury to
the copier's business, (2) the diminution of value of the copier's copies, and (3) the virtual
destruction of value of the derivative work? The Supreme Court has held that two kinds of
government conduct can constitute takings and thus require compensation. The first kind is
when the government appropriates your property for its own use, or requires you to let others
use it. Building a highway across your land; demanding that you let the public use your
private beach; allowing a cable company to attach their cables to your property^— all these
qualify as "physical takings." An analogy in the copyright context would be if the government

2. Under the DeConcini bill, the copies made before the restoration of copyright would still
be worth something, because they could still be sold. But I believe that selling them would
constitute exploitation of the property rights in the copies themselves, rather than exploitation
of the copyrighted work. 17 U. S. C. § 109. The Copyright Act makes clear that the copy
and the underlying work are two different pieces of propeny. 17 U. S. C. § 202. Restoration
reduces the value of the copyrighted work to virtually nothing, even if the copies still retain
some value.

3. See, e.g., Dolan v. City of Tigard, 114 S. Ct. 2309 (1994); Nollan v. California Coastal
Comm'n, 483 U. S. 825 (1987); Loretto v. Teleprompter Manhattan CA TV Corp., 458 U. S. 419
(1982).

180

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368

prints copies of your book without permission, or declares that certain works, which used to
be protected by copyright, are no longer protected.''

The second kind of taking is a "regulatory taking"— a government regulation depriving
you of all economically viable use of your property.^ It's generally not enough that the
regulation make your property less valuable; lots of laws do that. Rather, it's necessary that
all or vinually all the value of the property be lost.

The bills don't work physical takings, because they don't let the government or anyone
else use a reliance party's property. The reliance party needn't return any copies of the work
to the original author, nor does the original author get any rights to the derivative works that
the reliance party created. Nor do the bills work regulatory takings when the copier loses
some of the value of his business (situation 1) or of the copies he's made (situation 2 under the
DeConcini bill). He's lost value, but he hasn't lost all value.*

4. The Supreme Court has made clear that the Takings Clause applies to intangible property
such as copyrights, Ruckelshaus v. Monsanto Co., 467 U. S. 986 (1984), though it has never
addressed the question in any detail.

5. Lucas v. South Carolina Coastal Council, 112 S. Ct. 2886 (1992).

6. As I alluded to above, under the DeConcini bill the copiers would probably use the year
after restoration to sell their stocks in bulk to bookstore (or music or video store) owners.
The bookstore owners would then be able to sell the copies to consumers indefinitely, so long
as they do it one copy at a time. See sec. 202(b). The copies wouldn't be worth as much as
before restoration, because the pressure of the one-year deadline might force distributors to
sell them for less. But they'd still be worth something. The result may be harsh, but it's
probably not harsh enough to give rise to constitutionally compelled compensation.

181

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368

But situation 3— where the reUance party has created a derivative work— probably does
give rise to a taking, because the restoration of copyright has prohibited the owner of the
derivative work from doing virtually anything with the work. This is the copyright equivalent
of the total bans on development the Court spoke of in cases such as Lucas v. South Carolina
Coastal Council and First English Evangelical Lutheran Church of Glendale v. County of Los
Angeles J

Likewise, situation 2 under the Hughes bill, where the reliance party has only a year
to sell his entire inventory of copies to consumers, might also involve a taking. If most of the
inventory can indeed be sold in a year at a decent price, there'll probably be no problem. But
if the reliance party can sell no more than a small fraction— as I expea might happen in many
cases— it may be fair to say that he's lost virtually all the value of his property.

3. The Office of Legal Counsel's Memo

Predictions about the Takings Clause are always speculative; Takings Clause jurispru-
dence is notoriously uncertain. The Office of Legal Counsel suggests the statute wouldn't pose
any problem, and it has at least one fairly strong argument for this— that the regulatory takings
doarine might apply only to real estate, and not to personal property.

7. 482 U. S. 304 (1987).

182

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368

I disagree with this position; I don't think that there's anything magical about land, or
that there's any good reason to treat loss of value of copyright differently from loss of value
of land. And the Supreme Court has clearly said that the Takings Clause does generally apply
to copyrights.

Nonetheless, there is language in Lucas that to some extent supports the Office of Legal
Counsel's view.' Moreover, a 1979 case called Andrus v. Allarct did hold that a total ban on
sale of a product— the bodies of endangered eagles— didn't constitute a taking. On the other
hand, Chief Justice Rehnquist and Justice Scalia have specifically said that they think Andrus
is no longer good law,'° and Justices O'Connor, Kennedy, and Thomas, who seem to favor
a fairly broad reading of the Takings Clause," might go along with this view. I think courts
will ultimately conclude that Lucas applies to personal property, but I can't be positive about
this.

8. "[I]n the case of personal property, by reason of the State's traditionally high degree of
control over commercial dealings, [the property owner] ought to be aware of the possibility
that new regulation might even render his property economically worthless." Lucas, 112 S.
Ct. at 2899. While this language may validate some regulations that render personal property
worthless, I do not think that it will validate all such regulations. And this is especially so
where the property involved is a copyright, which is specifically designed to be an incentive
for investment, and which historically has not been subjea to retroaaive regulation.

9. 444 U. S. 51 (1979).

10. Model v. Irving, 481 U. S. 704, 719 (1987) (Scaha, J., concurring).

11. See Dolan v. City o/Tigard, 114 S. Ct. 2309 (1994); Lucas.

183

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368

I am, however, fairly certain that three other arguments that the Office of Legal
Counsel makes are incorrect. First, the Office suggests that the one-year grace period might
avoid Takings Clause problems. It argues that with the grace period the reliance party
wouldn't lose all the value of the derivative work, because the party would still be able to earn
one year's worth of mcome. But the Court has made clear that even temporary regulatory
deprivations count as takings.'' If the government takes your property for a year, it must
pay you for that year, even if it gives your property back at the end. Surely, then, if the gov-
ernment takes your property permanently, effective a year from now, it will also have to com-
pensate you.

Second, the Office points out that the reliance party's interest in the derivative work
might not be totally destroyed, because "it is conceivable that in some cases a court would
award only a manageable amount of damages" for the continued exploitation of the movie
"rather than issue an injunction."" But even setting aside the speculative nature of their argu-
ment—in fact, whether a court issues an injunaion is largely up to the district judge— willful
copyright infringement is a crime. When it's a crime to use one's property in any economical-
ly feasible way, I'd say this means it's lost all its value for Takings Clause purposes.

12. First English Evangelical Lutheran Church v. County of Los Angeles, 482 U. S. 304 (1987).

13. OLC Memo at 15.

184

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368

Finally, the Office points out that the reliance partv could buy a license from the
original author that will let him keep using his derivative work. Thus, the Office suggests,
the Act doesn't reallv deprive the reliance party of all economically viable use of his copy-
right.

I agree that many authors might indeed be willing to make a deal that will let the
reliance party keep making some money. Some authors, though, would just say no, which
under the law would be their absolute right. Moreover, even if they're willing to say yes, the
reliance party would be in a horrible bargaining position. For instance, when a producer first
approaches an author to buy movie rights, the author knows that if he asks for too much
money, the producer can just go away and buy some other screenplay instead. But here the
author has the producer over a barrel. The producer has already spent his money and made
the movie. The author has a complete veto; the producer has to take virtually any terms the
author demands.

The essence of private property is the power to use it without having to go to someone
else for permission. When the law makes it impossible to make money from one's property
unless one gets someone else's blessing, the law has taken away a whole lot. I doubt that
courts will find the possibility of getting permission from the original author to be enough to
avoid a regulatory takmg.

185

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368
4. What Is To Be Done

The original author is in a very sympathetic position. Because of a technical failure to
comply with a formality (or because of the pre-1972 Copyright Aa's refusal to protect sound
recordings) he's lost his right to control and profit from his brainchild. From the viewpoint
of abstract fairness, this shouldn't have happened. Setting aside the bad effeas of restoration
on reliance parties, restoration is a good thing.

But the principle behind the Takings Clause is that the government can't just change
the rules any time it thinks they're unfair. Takings Clause jurisprudence recognizes this:
Under the Takings Clause, when the government first gives you title to your property, it can
give it to you subjea to all sorts of easements or restrictions or whatnot. But if the govern-
ment gives it to you free and clear and you invest in it based on this expeaation, the govern-
ment can't just turn around and shout "Surprise!"

There are several things you as legislators can do. To begin with, if you think— in your
own independent constitutional judgment— that the proposed legislation does not pose takings
problems, and if you think the courts will agree with you, then you can pass the statute as is.
The downside to this, of course, is that if courts do find that the statute sometimes works
takings, the government might end up on the hook for a lot of money.

186

Testimony of Eugene Volokh regarding H.R. 4894 and S. 2368

Moreover, once the government is found to owe the money, Congress can't elimmate
this hability by just repeahng this statute. Even if Congress undoes the restoration provisions,
the government would still have to pay for the losses incurred while the provisions were in
effect. And undoing the restoration provisions might infringe on the restored property rights
of the foreign authors. Once the foreign authors are given copyrights by the proposed bills,
these copyrights themselves become property proteaed by the Takings Clause.

If you are concerned about this, or if, regardless of what the courts say, you think the
statute's burden on reliance parties is substantial enough to rise to the level of a taking, you
may want to change the Act to deal with this. Several possibilities come to mind. First, you
might exempt derivative works altogether from the restoration provisions, much like deriva-
tive works are exempted from an author's termination right under section 203(b)(1) of the
Copyright Aa. Alternatively, you might have some sort of provision for payment of royalties
by the derivative work owner; the exaa amount of the royalties could be determined by
arbitration. And in either case, you might choose the DeConcini version rather than the
Hughes version, which will prevent possible takings difficulties relating to distributors who
have inventories of copies that they need to sell.

Prediaing how other countries would reaa to these compromises is far outside my ex-
pertise. But I am fairly sure that adopting these changes would avoid takings problems.

187

Mr. Herman of California. Professor Perlmutter, you may make
your opening statement.

STATEMENT OF SfflRA PERLMUTTER, PROFESSOR, CATHOLIC
UNIVERSITY SCHOOL OF LAW, WASHINGTON, DC

Ms. Perlmutter. Thank you, Mr. Berman. I thank the chairmen
of both subcommittees and the members for the opportunity to tes-
tify this morning. I will discuss only those provisions of the bills
that would restore copyright protection to certain foreign works of
authorship that are now in the public domain in this country.

I would like to start by saying that I strongly support the goals
of the legislation as a matter of policy. The restoration of these
lapsed copyrights implements basic principles of fairness. As dif-
ficult as it has been over the years for American authors to comply
with the strict formalities that were the hallmark of our copyright
system for so many years, it has been even more difficult for for-
eign authors. Many have lost their American copyrights without
even having sought to exploit their works here, and often without
being aware of the requirements of American law.

Now that we are in a situation where we have essentially elimi-
nated formalities from our system, it is only appropriate to restore
these copyrights and redress the draconian effects of our prior law.

From a legal point of view, of course, the bills raise the question
of whether the Constitution permits Congress to remove works of
authorship from the public domain and fence theni off as private
property anew. There are two most obvious constraints: One is the
takings clause, which Professor Volokh has addressed; the other is
the copyright clause, the source of Congress' power to grant copy-
rights.

Ordinarily, copyright legislation operates on a prospective basis
and affects only future owners and future users. But there have
been some occasions in the past where amendments to the Copy-
right Act have altered the existence or scope of rights in works that
were already created. My written statement describes some exam-
ples of these prior retroactive statutes. None of them has yet been
the subject of a successful challenge in court on either takings
clause or copjo-ight clause grounds. I would point out, though, that
none has gone as far as the bills that are the subject of this hear-
ing in restoring copyright to such a vast number of works in all cat-
egories of authorship from countries all around the world.

My comments will focus on the potential constraints that the
cop3rright clause imposes on such retroactive protection. To begin
with, the Supreme Court has clearly held that the patent and copy-
right clause — the entire clause — is both a grant of power to Con-
gress and a limitation on that power. I see three separate grounds
on which the constitutionality of the proposed legislation could be
called into question under the copyright clause.

One is the purpose set forth in the clause, which states that
"Congress has the power to grant copyrights to promote the
progress of science and useful arts."

The second is the clause's requirement that "protection be for
limited times."

And the third is the Supreme Court's past interpretation of the
clause in the well-known case of Graham v. John Deere Co., as re-

188

fleeted in its statement that "Congress may not authorize the issu-
ance of patents whose effects are to remove existent knowledge
from the pubHc domain or to restrict free access to materials al-
ready available." So these are the three possible problems.

In my opinion, none of these three grounds should pose an obsta-
cle to the restoration of these copyrights generally. The one excep-
tion is the proposed treatment of derivative works that are based
on restored works.

Now, to take the three possible grounds in reverse order, I would
like to start with the Supreme Court's statement in Graham v.
John Deere. On its face, that statement applies only to patents. I
do not think it should be read more broadly, to suggest that Con-
gress can't grant copyrights to works that are already in the public
domain.

In the context of the entire opinion, the basis for the statement
is clear. If an invention is already available to the public, then by
definition it is not novel. Therefore, the fundamental standard for
patent protection just is not met. In contrast, in the copyright area,
restoring copyright to a work that is in the public domain because
of a failure to comply with formalities or a lack of national eligi-
bility does not call into question the satisfaction of the fundamental
standard for copyright protection. You have a work that contains
no less original authorship than it did at the time of its creation.

In addition, the Supreme Court made clear that its concern was
the removal of existing knowledge from the public domain in the
patent context. That concern is not implicated when you restore a
copyright. Since facts and ideas are not protected by copyright, the
knowledge that is contained in a restored work would remain freely
available to the public.

Second, the "limited times" language. The copyright clause says
plainly that Congress can only grant copyrights for limited times.
The concern behind that phrase is that Federal copyright protec-
tion is not to endure forever. It is supposed to give authors protec-
tion for a reasonable period of time only, to give incentives to cre-
ate, with all works eventually entering the public domain. So there
is no question that the ultimate duration of a copyright must be
limited, but that doesn't mean there can't be any interruption of
protection during that limited time period.

In examining, any legislation that restores copyright in public do-
main works, it is important to distinguish among the possible rea-
sons for the public domain status. If the work fell into the public
domain because the term of protection expired, then it would vio-
late the limited times requirement of the copyright clause to revive
it. On the other hand, if the loss of protection was caused by a fail-
ure to comply with formalities or by the absence of cop3rright rela-
tions between the United States and the work's country of origin,
it should not be a constitutional problem. For these works. Con-
gress has already made available fixed terms of potential protec-
tion, and the works do not enjoy those terms today for reasons that
are completely unrelated to the limited times policy.

The third potential problem is a more complex one, and that is
the question of the purpose provision of the copyright clause: 'To
promote the progress of science and useful arts." And again, in
Graham v. John Deere, the Supreme Court made clear that this

189

purpose imposes restraints on congressional power to legislate. So
it does have some substantive effect.

Now, the argument could be made that a retroactive grant of pro-
tection to existing public domain works does not promote the
progress of science and the arts in this country. First of all, it
might be argued that the authors of these works no longer need
copyright as an incentive to create because the creation has already
occurred. Second, the bills don't directly and obviously help Amer-
ican authors. They would restore copyrights only in foreign works.

I don't think that this analysis is persuasive. If every change in
the law in itself had to provide an incentive to creation. Congress
would be unable ever to narrow the scope of protection in any way,
even for future works. Instead, it is important to look to the over^l
balance of rights, both domestically and internationally. It is the
cop3a-ight system in its entirety that has to provide incentives and
promote the progress of science, not any isolated provision of the
law and not any individual work of authorship.

These pending bills would promote progress by assisting Amer-
ican authors and adding indirectly to future incentives to create. In
the short run, American authors would be helped by the willing-
ness of other countries — and now I am talking about both present
and future members of Berne and the World Trade Organization —
to reciprocate by granting retroactive protection to American
works. Under current law, for example, Russia has taken the posi-
tion that it will not be required to protect American works created
before it accedes to Berne, citing our interpretation of Berne as not
necessarily requiring retroactive protection.

In the long run, American authors would be helped by improved
international copyright relations generally, which is likely to
strengthen their enforcible rights abroad for both existing and fu-
ture works.

I would just like to add one point, and that is that this can be
seen as remedial legislation. It does not give entirely new rights.
Instead, it simply makes sure that foreigners get rights that Con-
gress had already decided to make available, in its judgment that
this was an appropriate part of the incentives to create that the en-
tire copyright system offers. Whether or not such remedial legisla-
tion might pose a takings clause problem, it should be within Con-
gress' leeway under the copyright clause.

For all of these reasons, I believe that restoration of these lapsed
copyrights would in general be a legitimate exercise of congres-
sional power under the copyright clause.

As implemented in these bills, however, retroactivity does raise
one real issue. I think there are some constitutional concerns under
the purpose phrase of the copjn-ight clause, having to do with the
treatment of derivative works. These are works that result from
the investment not just of money but of creativity, and it is that
creativity that is the central goal of the copyright system to foster.

These are new works of authorship in their own right. And allow-
ing owners of restored works to block the exploitation of this new
authorship, even after a period of 12 months, arguably hinders,
rather than promotes, the progress of science and the arts.

Thank you.

[The prepared statement of Ms. Perlmutter follows:]

190

TESTIMONY OF PROFESSOR SHIRA PERLMUTTER

BEFORE THE SUBCOMMITTEE ON INTELLECTUAL PROPERTY AND JUDICIAL

ADMINISTRATION OF THE HOUSE COMMITTEE ON THE JUDICIARY,

AND THE SUBCOMMITTEE ON PATENTS, COPYRIGHTS, AND TRADEMARKS

OF THE SENATE COMMITTEE ON THE JUDICIARY

ON
H.R. 4894 and S. 2368

AUGUST 12. 1994

Good morning. I thank Chairman Hughes, Chairman DeConcini,
and the members of both Subcommittees for the opportunity to
testify today on H.R. 4894 and S. 2368. My comments will be
addressed solely to Section 5 of the Senate bill and Title II of
the House bill, entitled the Berne and GATT Retroactivity Act.

A. The Proposed Legislation

The proposed legislation would extend copyright protection in
the United States to certain works of authorship from foreign
countries which are members of either the Berne Convention for the
Protection of Literary and Artistic Works or the World Trade
Organization. The potentially problematic aspect of the
legislation from a legal point of view is the fact that the works
to be protected are currently in the public domain in the United
States, free for anyone to use. The bills therefore raise the
question of whether the Constitution permits Congress to remove
works of authorship from the public domain and fence them off as
private property.

191

Several possible constraints on Congressional power to do so
can be found in the Constitution. Most obvious are the Copyright
Clause, the source of Congress's power to grant copyrights, aad the
Takings Clause of the Fifth Amendment. I will discuss some
examples of prior copyright legislation that has also accomplished
a reallocation of rights, and then focus on the constraints imposed
by the Copyright Clause in enacting this retroactive legislation.
I will conclude by identifying some substantive concerns raised by
the bills as currently drafted.

At the outset, let me state that I support the goals of the
proposed legislation as a matter of policy. Apart from U.S. treaty
obligations, the restoration of many of these lapsed copyrights
implements basic principles of fairness. As difficult as it has
been for American authors to comply with the strict formalities
that were the hallmark of United States copyright law for so many
years, it has been even more difficult for foreign authors. Many
lost their U.S. copyrights to the public domain without having
sought to exploit their works here, or without being aware of the
requirements of our law.^ Now that we have essentially eliminated
formalities from our copyright system, it is appropriate to restore
these copyrights and redress the draconian effects of prior law.

^ In the past, copyrights could be lost under U.S. law through
publication without notice anywhere in the world, or through
failure to file an application for the renewal term. See 17 U.S.C.
§ 401(a) (1978) (amended 1989); § 304 (1978) (amended 1992).

192

B. Prior Retroactive Copyright Legislation

Copyright law defines the boundaries of what is protected in
works of authorship. Accordingly, it functions as the dividing
line between the public domain and private property. Every piece
of copyright legislation moves that line in one direction or the
other; by definition, any change in the law must either add to the
rights of copyright owners or enlarge the privileges of copyright
users. In most cases, the change is purely prospective, affecting
only future owners and future users.

There have been a number of exceptions in the past, however,
where amendments to the Copyright Act have altered the existence or
scope of rights in works already created. Some of these
alterations have cut back on the rights of copyright owners, while
others have expanded them and thereby limited the ability of users
to continue uses that would have been permissible in the past. For
some, questions of constitutionality have been raised, and have
occasionally influenced the final form of the legislation. For
others, the effect on existing rights has been so minor that the
questions have not even been raised. None of the amendments have
been the subject of a successful challenge in court on Copyright or
Takings Clause grounds.^

The sole reported decision addressing a Constitutional
challenge to an alleged "taking" of property by the copyright law

2 In United Christian Scientists v. Christian Science Board of
Directors. 829 F.2d 1152 (D.C. Cir. 1987), a private copyright bill
was alleged to violate the Copyright Clause. The court did not
reach this claim, but held the bill unconstitutional as a violation
of the Establishment Clause of the First Amendment.

193

involved a taking of physical, tangible property rather than the
intangible work of authorship itself. In Ladd v. Law & Technology
Press, a publishing company claimed that the deposit requirement of
the Copyright Act,-' which forced it to provide the Library of
Congress with two copies of each issue of its published
periodicals, was invalid as not "necessary and proper" to carry out
the Copyright Clause and also violated the Takings Clause of the
Fifth Amendment.* The Ninth Circuit rejected both claims. As to
the Copyright Clause, it pointed out that "the primary purpose of
the clause is to promote the arts and sciences for the public good,
not to grant an economic benefit to authors and inventors," and
that this purpose was furthered by a provision of the law which
"sustains a national library for public use."^

The Takings Clause challenge was dismissed by a similarly
broad reading of Congressional authority in the copyright arena.
Although the copies of the periodicals were clearly property, and
the deposit for the Library was for public use, the court held that
the deposit requirement was a condition legitimately attached by
Congress to the grant of the statutory benefit of copyright. It
explained, "The Copyright Clause grants copyright protection for
the purpose of promoting the public interest in the arts and

^ 17 U.S.C. S 407 (1978) .

** 762 F.2d 809 (9th Cir. 1985), cert, denied, 475 U.S. 1045
(1986) . The plaintiff also challenged the deposit requirement as
a violation of the First Amendment; this claim too was rejected by
the court.

^ Id. at 812.

194

sciences. Conditioning copyright on a contribution to the Library
of Congress furthers this overall purpose."^ This was true
despite the fact that protection was not forfeited by a failure to
comply, since deposit remained an enforceable requirement of the
copyright law.

It should be noted that the Ninth Circuit distinguished a line
of Supreme Court cases holding that the United States could not
appropriate a patented device for its own purposes.' In those
cases, according to the court, the government was not acting
according to a general statutory scheme imposing a condition on
protectibility, and was appropriating the patented device for its
own use rather than to further the public welfare by promoting arts
and sciences.

1. Legislation cutting back the copyright owner's rights
On rare occasions. Congress has passed legislation cutting
back the copyright owner's existing rights. In one notable
example, the takings issue was raised and discussed. In the 1976
Act, Congress made major changes in the duration of copyright
protection. Among other things, it abolished common law copyright
for unpublished works, substituting a unitary federal scheme of
protection for all works, whether published or unpublished. In
doing so, Congress replaced the formerly perpetual duration of
common law copyright with a fixed term measured by the life of the

^ Id. at 814,

' Id. at 814-15,

195

author plus fifty years (the same term that applied to published
works) . Because of concerns about the constitutionality of
divesting copyright owners of potentially years of protection,
however, a grace period of extra time was added: no copyright in
any work protected by common law at the time the Act was passed
would expire before the end of the year 2002; if the work was
published in the interim, protection would extend for another 25

years.®

2. Legislation expanding the scope of protection
for existing works

Another category of legislation raising potential
constitutional problems is legislation that expands the scope of
protection for existing works, thereby cutting back on the ability
of the public to use those works. Indeed, the history of copyright
in this country has been one of continued expansion of both
categories of works protected and of the rights granted to
copyright owners. In the early years of American copyright,
Congress accomplished this expansion without always providing
safeguards for prior users. Thus, for example, the right to
prepare translations of an underlying work was not recognized as

® 17 U.S.C. S 303 (1978). See discussion in H.R. Rep. No. 94-
1476, 94th Cong., 2d Sess. 139 ("The committee believes that a
provision taking away subsisting common law rights and substituting
statutory rights for a reasonable period is fully in harmony with
the constitutional requirements of due process, but it is necessary
to fix a "reasonable period" for this purpose"); SUPPLEMENTARY
REPORT OF REGISTER OF COPYRIGHTS ON THE GENERAL REVISION OF THE
COPYRIGHT LAW: 1965 REVISION BILL, 89th Cong., 1st Sess. 92-93.

196

7
part of the copyright owner's exclusive rights until 187 0.^ When
this right was added to the law, the owners of already-existing
translations were not specifically exempted from its effect.

In the twentieth century, Congress has consistently shown
consideration for the impact on current users who have relied on
the existing state of the law when expanding the copyright owner's
rights. In 1909, when owners of copyright in musical works were
given the right to reproduce them in phonorecords (subject to a
compulsory license) , the new right was limited to compositions
published and copyrighted after the effective date of the Act, due
to concerns of fairness to users of existing works. ^° And when
the 1909 Act's blanket exemption for jukebox performances of
musical compositions was abolished by the 1976 Act, the House
Report gave the following reason for substituting a compulsory
license: "Unlike other commercial music users, who have been
subject to full copyright liability from the beginning and have
made the necessary economic and business adjustments over a period
of time, the whole structure of the jukebox industry has been based
on the existence of the copyright exemption. "^^

' Act of July 8, 1870, 41st Cong., 2d Sess. § 86.

^° 17 U.S.C. § 1(e) (1909). See discussion in Revision of
Copyright Laws, Hearings Before the Committees on Patents of the
Senate and the House of Representatives, 60th Cong., 1st Sess. 230,
246 (1908); Arguments on S. 6330 and H.R. 19853 Before the
Committees on Patents of the Senate and the House of
Representatives, 59th Cong., 1st Sess. 27, 30, 95-96, 100-101, 141,
193-94 (June 6-9, 1906); id^ at 222, 292, 364-65 (Dec. 7, 8 and 10-
11, 1906).

^^ H.R. Rep. No. 94-1476, 94th Cong., 2d Sess. 113 (1976).

197

Similarly, when the first sale doctrine was modified in 1984
and again in 1990 to return to copyright owners their control over
the commercial rental of sound recordings and computer programs,
Congress was careful to exclude already-acquired copies, out of
concern for the constitutional implications.^^ Owners of these
copies are governed by the law as it existed before the relevant
amendment. ^^

In the most recent additions of new subject matter and rights
to the Copyright Act, the Architectural Works Copyright Protection
Act and the Visual Artists Rights Act, the law was drafted to apply
primarily to newly-created works, avoiding possible Takings Clause
problems. The only already-existing works covered by either
amendment were narrowly defined in such a way that third parties
were unlikely to have had access to the works or to have relied on
their availability.^*

^2 See discussion in H.R. Rep. No. 101-735, 101st Cong., 2d
Sess. 10 (1990) .

^^ See Act of October 4, 1984, Pub. L. 98-450, 98 Stat. 1727;
Computer Software Rental Amendments Act of 1990, Pub. L. 101-650,
104 Stat. 5089.

^* See Architectural Works Protection Act, Pub. L. 101-650,
104 Stat. 5089, 5133 (extending protection to architectural works
created after the effective date of the act plus already-created
works that had not yet been constructed and were embodied only in
unpublished plans or drawings) ; Visual Artists Rights Act of 1990,
Pub. L. 101-650, 104 Stat. 5089, 5128 (extending new rights to
works of visual art created after the effective date of the act
plus already-created works as to which title to the physical
embodiment had not yet been transferred) . Cf . H.R. Rep. No. 101-
514, 101st Cong, 2d Sess. 23 (1990) (describing earlier version of
Visual Artists Rights Act, which would have protected already-
created works the copyright in which had not yet been transferred) .

198

3. Legislation extending term of subsisting copyrights
Over the years, Congress has several times acted to extend the
term of subsisting copyrights. Beginning in 1962, during the
revision process that culminated in enactment of the 1976 Act, the
terms of copyrights about to expire were extended so that they
would endure until the Act took effect. ^^ When the Act finally
did take effect, it extended the terms of all existing federal
copyrights from a potential duration of 56 years from publication
to a potential duration of 75 years. ^^ Currently under discussion
are proposals to extend the term of copyright once again, from life
of the author plus 50 years to life plus 70.^'

All of these extensions of term give the copyright owner
greater property rights than the author could have expected at the
time of creation, and on the other hand take from the public the
right to use the work freely for an additional period of time.
Nevertheless, since these works were still under protection at the
time of the legislation, no one could yet have used them to make
copies or derivative works under the belief that they were in the
public domain.

^5 See, e.g. . Act of December 31, 1974, Pub. L. 93-573, 88
Stat. 1873 (citing bills implementing earlier extensions) .

^^ 17 U.S.C. S 304 (1978). See also id. § 305 (extending all
copyright terms to the end of the calendar year) .

^' In the wake of a European Community directive requiring
member states to harmonize their laws to provide the life plus 70
term. Council Directive 93 98 EEC of 29 Oct. 1993, the Copyright
Office held hearings last year on the possibility of a similar
extension of term in the United States.

199

4. T.eaislation reviving lapsed copyrights

The constitutional issues are most starkly presented by
legislation that revives lapsed copyrights. The works involved,
initially subject to protection, fell into the public domain, free
to be used by others—only to be pulled back after time had passed
into the realm of private property. Congress has enacted such
legislation rarely, but occasionally. Thus, during the two world
wars. Congress authorized the President to restore copyrights that
had fallen into the public domain because of the owners' failure to
comply with the formalities of United States law in wartime
conditions. IS Both acts explicitly exempted unauthorized uses
that occurred before their effective date; the World War II version
also allowed the continuation of such uses for a year from their

commencement .

In 1971, Congress passed an unusual private law, granting
copyright for a term of 75 years from the law's effective date in
all editions of the work "Science and Health with Key to the
Scriptures," by Mary Baker Eddy, founder of the Christian Science
church. ^^ Several of these editions had already fallen into the
public domain through expiration of term. This law was eventually
struck down as unconstitutional by the D.C. Circuit, but on First
Amendment grounds rather than Copyright or Takings Clause

IS Act of December 18, 1919, 41 Stat. 368; Act of September
25, 1941, codified at 17 U.S.C. S 9 (1947).

^' Private Law 92-60, 85 Stat. 857 (Dec. 15, 1971).

200

grounds . ^°

In 1976, in enacting the current Copyright Act, Congress made
clear its intent not to revive any lapsed copyrights. It provided
explicitly in a transitional and supplementary provision: "This
Act does not provide copyright protection for any work that goes
into the public domain before January 1, 1978."^^

The issue of retroactive protection next arose when the United

States joined the Berne Convention for the Protection of Literary

and Artistic Works. Article 18(1) of the Berne Convention

provides: "This Convention shall apply to all works which, at the

moment of its coming into force, have not yet fallen into the

public domain in the country of origin through the expiry of the

term of protection." Article 18(3) adds the following

qualification:

The application of this principle shall be subject to any
provisions contained in special conventions to that effect
existing or to be concluded between countries of the Union.
In the absence of such provisions, the respective countries
shall determine, each in so far as it is concerned, the
conditions of application of this principle.

Accordingly, the discussions and hearings leading to passage of the

Berne Implementation Act of 1988 included the question of whether

the United States was required to extend protection to all existing

works from other Berne member countries which were still protected

in their countries of origin, even where those works had until U.S.

adherence to Berne been in the public domain in this country.

20 United Christian Scientists v. Christian Science Board of
Directors. 829 F.2d 1152 (D.C. Cir. 1987).

T & S § 103,

201

12
There was also extensive discussion of the Constitutional
implications of extending such retroactive protection. Ultimately
Congress decided to postpone its determination to a later date, and
made no changes in United States law to implement Article 18. The
House Judiciary Committee explained, "[W]e remain persuaded that
any solution to the question of retroactivity can be addressed
after adherence to Berne when a more thorough examination of
Constitutional, commercial and consumer considerations is
possible. "^^

Most recently, the legislation implementing the North American
Free Trade Agreement revived some lapsed copyrights, restoring
copyright protection to certain Mexican and Canadian motion
pictures that fell into the public domain in the United States due
to publication without notice at a time when notice was required by
U.S. law.^-' While this provision has not yet been challenged, no
restored copyrights have yet become enforceable (pending
publication of "statements of intent" filed by the copyright
owners) .

Although some prior retroactive copyright legislation has
survived without legal challenge, none has gone so far as the bills
that are the subject of this hearing. The proposed legislation
would restore copyright protection to innumerable works in all
categories from around the world, all of which are today in the

22 H.R. Rep. No. 100-609, 100th Cong., 2d Sess. 52 (1988).

2^ North American Free Trade Agreement Implementation Act,
Pub. L. 103-182.

202

13
public domain. And the protection it provides to current users of
those public domain works is not absolute. It therefore seems
likely that it will be challenged in court on constitutional
grounds, whether or not that challenge is ultimately successful.

C. Possible Copyright Clause Constraints

The Patent and Copyright Clause of the Constitution authorizes
Congress "to promote the Progress of Science and useful Arts, by
securing for limited Times to Authors and Inventors the exclusive
Right to their Writings and Discoveries. "2'' The Supreme Court has
held that this Clause "is both a grant of power and a limitation
. . • The Congress in the exercise of the patent power may not
overreach the restraints imposed by the stated constitutional
purpose. "^^

The constitutionality of the proposed legislation might be
called into question as exceeding Congress's power under the
Copyright Clause on three separate grounds: (1) the purpose set
forth in the Clause, which gives Congress the power to grant
copyrights "to promote the progress of science and useful arts";
(2) the "limited Times" language; or (3) the Supreme Court's
interpretation of the Clause in Graham v. John Deere Co. . as
reflected in the statement that "Congress may not authorize the

2^ U.S. CONSTITUTION, Art. I, § 8, cl. 8.

25 Graham v. John Deere Co.. 383 U.S. 1, 5-6 (1966). See also
Feist Publications. Inc. v. Rural Telephone Service Co. . 499 U.S.
340, 346-47 (1991) (holding that Clause places limits on subject
matter that can be protected as "writings" of "authors") .

203

14
issuance of patents whose effects are to remove existent knowledge
from the public domain, or to restrict free access to materials
already available. "^^ In my opinion, none of the three grounds
poses an obstacle to restoration of these copyrights generally.
The one potential problem is the proposed treatment of derivative
works based on restored works.

1. Graham v. John Deere

As to the Supreme Court's famous statement in Graham v. John
Deere. on its face it applies only to patents, not to
copyrights.^' Nor should it be read more broadly, to suggest that
Congress cannot grant copyrights to works already in the public
domain. Graham does not confer inviolable status on the public
domain in all circumstances and for all purposes. When read in the
context of the entire opinion, the basis for the quoted statement
is clear: if an invention is already available to the public, by
definition it is not novel, and therefore the fundamental standard
for patent protection is not met. The work is not innovative, and
does not "add to the sum of useful knowledge," therefore meriting
the strong monopoly of a patent. Restoring copyright to a work
that is in the public domain for failure to comply with formalities

2^ 383 U.S. 1, 6 (1966) .

^' Indeed, the Court specifically identified the copyright
provision of the constitutional clause as "not relevant here." Id.
at 5, n. 1. See also Mitchell Bros. Film Group v. Cinema Adult
Theater . 604 F.2d 852, 860 (5th Cir. 1979), cert, denied. 445 U.S.
917 (1980) (differentiating between application of Patent and
Copyright Clause in the context of patents and the context of
copyrights) .

204

or lack of national eligibility, in contrast, does not call into
question the satisfaction of the fundamental standard for copyright
protection. The work contains no less original authorship than it
did at its creation.

Moreover, the Court's expressed concern, the removal of
existing knowledge from the public domain, would not be implicated
by the restoration of a copyright. Since facts and ideas are not
protected by copyright, ^^ the knowledge contained in a restored
work will remain freely available to the public.

It is worth noting that even in the context of patents,
Congress has not treated the public domain as entirely inviolable.
For example, the Patent Act provides that inventors who have lost
their patents through the failure to file timely maintenance fees
may in some circumstances have the patents restored. ^^ When this
occurs, the investments of intervening users are protected by
allowing them to continue their use to a certain extent. ■'° This

2^ See 17 U.S.C. § 102(b) (1978); Feist Publications. Inc. v.
Rural Telephone Service Co.. 499 U.S. 340, 344-45 (1991); Harper &
Row. Publishers, v. Nation Enterprises. 471 U.S. 539, 556 (1985).

25 35 U.S.C. § 41(c) (1) .

^° See id. § 41(c) (2) : "No patent, the term of which has been
maintained as a result of the acceptance of a payment of a
maintenance fee under this subsection, shall abridge or affect the
right of any person or his successors in business who made,
purchased or used after the six-month grace period but prior to the
acceptance of a maintenance fee under this subsection anything
protected by the patent, to continue the use of, or to sell to
others to be used or sold, the specific thing so made, purchased or
used. The court before which such matter is in question may
provide for the continued manufacture, use or sale of the thing
made, purchased, or used as specified, or for the manufacture, use
or sale of which substantial preparation was made after the six-
month grace period but before the acceptance of a maintenance fee

205

provision supports an interpretation of Graham v. John Deere as
being concerned with the policy of novelty rather than the
preservation of the public domain as such.

2 . "For limited Times"

Congress can only grant copyrights "for limited Times." It
might be argued that once a work has fallen into the public domain,
its "time" has expired and its copyright cannot constitutionally be
restored. But this interpretation seems unwarranted as a matter of
both the Constitutional language and its underlying policy. The
phrase "for limited Times" embodies a concern that federal
copyright protection not endure forever, but give authors
protection for a reasonable period of time only, with all works
eventually entering the public domain. •'■'■ Accordingly, the
ultimate duration of the copyright must be limited. This does not
mean, however, that there can be no interruption of protection
during that time period.

under this subsection, and it may also provide for the continued
practice of any process practiced, or for the practice of which
substantial preparation was made, after the six-month grace period
but prior to the acceptance of a maintenance fee under this
subsection, to the extent and under such terms as the court deems
equitable for the protection of investments made or business
commenced after the six-month grace period but before the
acceptance of a maintenance fee under the subsection."

^^ See Twentieth Century Music Corp. v. Aiken. 422 U.S. 151,
156 (1975) ("The limited scope of the copyright holder's statutory
monopoly, like the limited copyright duration required by the
Constitution, reflects a balance of competing claims upon the
public interest: Creative work is to be encouraged and rewarded,
but private motivation must ultimately serve the cause of promoting
broad public availability of literature, music, and the other
arts.") .

206

In examining any legislation that restores copyright in public
domain works, it is necessary to distinguish among the reasons for
the public domain status. If a work has fallen into the public
domain because its term of protection has expired, it would violate
the "limited Times" requirement to revive it. Thus, the private
bill granting protection anew to expired versions of the Christian
Science teachings would not pass constitutional muster under the
Copyright Clause as well as the First Amendment.

If, on the other hand, the loss of protection was caused by a
failure to comply with formalities or the absence of copyright
relations between the United States and the work's country of
origin, there should be no constitutional problem. For such works.
Congress has made available fixed terms of potential protection,
which the works do not enjoy today for reasons unrelated to the
"limited Times" policy. Under this analysis, the wartime
recaptures and the NAFTA Implementation Act should be upheld. Just
as patents in the public domain because of procedural problems
unrelated to their novelty can be recaptured, these copyrights can
constitutionally be revived.

It is therefore important for the legislation to make clear
that it does not apply to works whose term of protection would have
expired under U.S. law. Under the pending bills, the restored
copyrights will give their owners no more than the term the works
would have enjoyed but for problems with formalities or national
eligibility.

>07

18
3 . "To promote the Progress of Science and useful Arts"
In the language from Graham v. John Deere quoted above, the
Supreme Court made clear that the purpose expressed in the Patent
and Copyright Clause imposes some restraints on Congressional power
to legislate. The argument could be made that a retroactive grant
of protection to existing public domain works does not promote the
progress of science in the United States. First, the authors of
these works no longer need copyright as an incentive to create;
their creation has already occurred. Second, the bills do not
directly help American authors; they restore copyrights in foreign
works only.

This analysis is not persuasive. If each change in the law
had to provide incentives to creation. Congress could never narrow
the scope of protection, even for future works. Rather, one must
look to the overall balance of rights, both domestically and
internationally. It is the copyright system in its entirety that
must provide incentives and promote the progress of science, not
any isolated provision of the law or any individual work of
authorship. ^^

^2 See Ladd v. Law & Technology Press. 762 F.2d 809, 812 (9th
Cir. 1985), cert, denied. 475 U.S. 1045 (1986) (upholding deposit
requirement of Copyright Act against a Copyright Clause challenge,
and stating: "[T]here is abundant authority that the primary
purpose of the clause is to promote the arts and sciences for the
public good, not to grant an economic benefit to authors and
inventors," and "the necessary and proper clause should be
liberally construed"); Mitchell Bros. Film Group v. Cinema Adult
Theater. 604 F.2d 852, 859-60 (5th Cir. 1979), cert, denied. 445
U.S. 917 (1980) (Copyright Clause does not require that each
copyrighted work individually be shown to promote science or useful
arts) .

208

Moreover, the bills would promote progress by assisting
American authors and adding indirectly to future incentives to
create. In the short run, American authors would be helped by the
willingness of other countries — both present and future members of
Berne and the WTO — to reciprocate by granting retroactive
protection to American works, both now existing and created in the
future. Under current law, for example, Russia has taken the
position that it need not protect American works created before it
accedes to Berne, citing the American interpretation of Berne as
not requiring such retroactive protection. In the long run,
American authors would be helped by improved international
copyright relations generally, which would strengthen their
enforceable rights abroad for both existing and future works. If
these effects are not sufficient to satisfy the purpose requirement
of the Copyright Clause, it is difficult to see how even purely
prospective protection for foreign works could be justified.

In essence, the bills should be seen as "remedial"
legislation. The legislation would not give new rights, but rather
ensure that foreigners enjoy the rights that Congress has already
decided to make available to them, in the judgment that such rights
are appropriate as part of the incentives to create offered by the
copyright system as a whole. The effect would be to redress the
past loss of available rights. Whether or not this causes a
Takings Clause problem, it should be within Congress's leeway in
setting boundaries under the Copyright Clause.

The weak spot of the proposed legislation from a

209

20
Constitutional perspective is its treatment of derivative works
based on restored works. Both bills place creators of derivative
works on a par with those who have invested financially in simply
reproducing the previously public domain works, or in purchasing
and distributing copies. All are labeled "reliance parties," and
all are given the same rights subsequent to restoration of the
copyright. In essence, they are free to continue to use the newly-
protected works until the copyright owner serves or files a notice
of intent to enforce its rights, and to continue to use already-
made copies for 12 months after the service or filing. As a matter
of both Copyright Clause and Takings Clause analysis, it would be
advisable to distinguish owners of derivative works from other
reliance parties, and give the former broader rights.

Although all reliance parties as defined in the bills may be
considered to have property interests protected under the Takings
Clause, the interests of derivative work owners are the only ones
protected as property under federal copyright law. These works
result from the investment not just of money, but of creativity —
the fostering of which is the central goal of the copyright system.
They constitute new works of authorship in their own right. This
creativity should not be barred from exploitation, at the will of
the restored copyright owner, after a period of twelve months.
While such a sell-off period may be sufficient for other reliance
parties reasonably to recoup their financial investment, it fails
to recognize the value of the new authorship added to a derivative
work. Legislation that achieves this result arguably violates the

210

21
Copyright Clause of the Constitution as hindering rather than
furthering the progress of science.

A preferable approach would be to provide some form of
compulsory license for derivative works, to take effect upon the
expiration of the 12-month period. A compulsory license would
allow the derivative work owner to continue to exploit the creative
authorship existing in his or her work, while ensuring that the
owner of the restored copyright would benefit from the restoration.
This result could be accomplished through legislation, or possibly
through the exercise of judicial discretion in determining
appropriate remedies for infringement of a restored copyright.'*

In sum, I believe that the restoration of these lapsed
copyrights would be a legitimate exercise of Congressional power
under the Copyright Clause. As implemented in the pending bills,
however, retroactivity does raise one real Constitutional concern
under the purpose phrase of the Copyright Clause: the treatment of
derivative works. Allowing the owners of restored works to block
the exploitation of the new authorship contained in derivative
works, even after twelve months of use, may be seen as impeding the
progress of science and the arts.

" Cf . Campbell v. Acuff-Rose Music. Inc.. 114 S. Ct. 1164,
1171 n. 10 (1994) (suggesting that it might be appropriate for
courts to withhold injunctive relief in some cases where a parody
is found not to qualify as a fair use); Abend v. MCA. — Inc. , 863
F.2d 1465, 1479 (9th Cir. 1988), aff'd sub nom. Stewart v. Abgn(j,
495 U.S. 207 (1990) (denying injunctive relief against continued
exploitation of derivative work created under a valid license which
was subsequently terminated).

211

D. The Pending Bills

I would also raise two issues as to specific provisions of the
bills in their current form. My concerns center on the definition
of "reliance party," and on the use of a notice mechanism to
trigger rights against such reliance parties.

1. Definition of "reliance party"

Both bills identify a category of prior user of a work
protected by a restored copyright, defined as a "reliance party,"
who is insulated from liability for infringement in certain
circumstances, and for a certain period of time after restoration.
In both bills, the definition encompasses any person who (1)
engaged in acts prior to restoration that would have constituted
copyright infringement, and continued to do so after restoration;
or (2) who made "substantial monetary investments" in creating a
work that incorporates material portions of a restored work.

It is not clear why the second type of "reliance party" should
be limited to one whose investment in creating a new work is
monetary in nature. A derivative work created by the investment of
original authorship, even without any financial expenditure, is
entitled to copyright protection as a new work.^* Under ordinary
principles of copyright law, however, it cannot be exploited

" See 17 U.S.C. § 103(a). The converse is also true:
monetary investment alone will not create a work protectible by
copyright law. Feist Publications. Inc. v. Rural Telephone Service
Co. . 499 U.S. 340, 352-54 (1991) (rejecting "sweat of the brow"
basis for copyright protection). Nevertheless, both as a matter of
fairness and to avoid Takings Clause problems, it is appropriate to
include as "reliance parties," shielded to some extent from
infringement claims based on restored copyrights, those who stand
to lose financial investments as well as. creative ones.

212

23
without the consent of the owner of copyright in the underlying
work.^^ As drafted, the bills might not provide any haven to one
who has spent years creating a derivative work based on a
previously-public domain foreign work, without spending substantial
sums in doing so.

For example, an individual author may have spent two years at
home in her study dramatizing or translating a foreign public
domain novel, only to find that the copyright has been restored.
If the act of preparing the derivative work was privileged as a
fair use, or if it had been completed prior to the date of
restoration, the derivative work author apparently would not
gualify as a "reliance party" under either branch of the
definition, and therefore would be unable to exploit the derivative
work even in the limited respects otherwise allowed.

2. Notices of intent to enforce restored copyrights
Under both bills, the ability of the owner of the restored
copyright to enforce rights against reliance parties turns on his
filing a notice of his intent to do so with the Copyright Office or
serving such a notice on the reliance party. This reguirement for
invoking enforceable rights raises the issue of compatibility with
the Berne Convention, which states that "[t]he enjoyment and the
exercise of the[ ] rights [protected] shall not be subject to any
formality."^" Is the notice mechanism a prohibited formality?

" See Stewart v. Abend. 495 U.S. 207 (1990).

"" Berne Convention for the Protection of Literary and Artistic
Works, Article 5(2).

213

While the mere concept of notice as a condition for any rights
may raise the specter of the abandoned U.S. formalities, and might
be seen as inconsistent with the spirit of Berne, I do not believe
it is impermissible. The leeway given to each country to determine
the "conditions of application" of the principle of retroactivity
under Article 18(3) of Berne is a recognition that some provision
must be made to avoid penalizing third parties who have relied on
a prior absence of protection.'^ The use of notice as such a
"condition of application" is a reasonable approach to this thorny
problem.

First, the notice requirement is of limited application. The
restored copyrights vest automatically, and can be enforced without
notice against anyone other than a reliance party. Second, the
notice need not be filed with the Copyright Office; it is
sufficient if it is served at any time on the particular reliance
party against whom the rights are to be enforced. This should not
pose an insuperable difficulty for the copyright owner; if he is
aware of the reliance party's activities and intends to sue,
service of a notice will be a simple matter. Finally, the notice
requirement is less onerous than the methods adopted by other
countries to respect the rights of prior users while complying with
Article 18. Unlike the situation in the United Kingdom or
Australia, for example, the copyright owner need not buy out the
rights of the reliance party.

" See Sam Ricketson, THE BERNE CONVENTION FOR THE PROTECTION
OF LITERARY AND ARTISTIC WORKS: 1886-1986, § 12.11 AT 675 (1937).

214
Mr. Berman of California. Mr. Karp.

STATEMENT OF IRVIN KARP, COUNSEL, COMMITTEE FOR
LITERARY STUDIES, NEW YORK, NY

Mr. Karp. Mr. Chairman, I appear here today in a pseudo-rep-
resentative capacity. I am chairman of a study being conducted by
Columbia University's Center for Law and the Arts institution on
implementing United States adherence to the Berne Convention.

Mr. Berman of California. Because it is academic, it is pseudo?

Mr. Karp. The title is academic. I am not an academic.

Mr. Berman of California. Oh.

Mr. Karp. I look at this primarily as someone who has appeared
before this committee about 40 times over the last 30 years in con-
nection with copyright legislation, and also as somebody who has
argued in the New York Court of Appeals and the Federal courts
of appeal several cases involving copjrright and other matters unre-
lated to it.

I appear with mixed emotions, because while I ask you to amend
the bills before you to protect reliance interests against unconstitu-
tional takings of their property, which I believe sincerely and firm-
ly the bills do, I almost wish you would pass them, because it
would be a great appeal to argue in the U.S. Supreme Court and
I would love to do it, as I have done many of these others — without
charge. And in most of them, I have won.

I have a winner's feeling about this. I think that Mr. Shapiro and
his colleagues are following the old adage of the 310th Infantry and
other infantry regiments which I knew about in World War II.
'Tou go first and we will cover you." But they are not going to be
able to cover you on this, because clearly the bills, as they deal
with derivative works, violate the Constitution. I am not going to
reiterate my colleague's analysis of it. I just want to, in that area,
point out

Mr. Berman of California. I just want to interrupt and say when
we 2 days ago passed the compliance legislation, which put the
House in the position of being covered by the laws that cover the
rest of the American people, we did not make ourselves personally
liable for unconstitutional legislation.

Mr. Karp. Oh, I don't think you are. Whether you should be is
another question. I don't think you are.

I do find that throughout the copyright hearings, the Constitu-
tion, unfortunately, was not paid too much attention to. I hark be-
fore your time, when the 1976 bill started to be considered in the
early 1960's. Constitutional arguments, except for Mr. Kastenmeier
and Father Drinan and Mr. Edwards, didn't play too well before
most of the committees that considered the revision bill.

I want to point out that the Supreme Court has pretty much told
us that we can't predict from earlier "takings" cases how they are
going to come down on the next one. As counsel for the Justice De-
partment pointed out, it is a very ad hoc process.

On the other hand, the Supreme Court has pointed out that — I
am quoting very briefly from my statement — that the general prin-
ciples of construction include the rule that a taking will be deemed
in violation of the fifth amendment when the regulation involved

215

is not reasonably necessary to the effectuation of a substantial gov-
ernment purpose. And that is the situation we have here.

Under the Berne Convention, article 18, we are not obliged to de-
prive reliance parties of their rights to the extent of, and with the
drastic consequences that flow from, the provisions and bills before
you.

The Berne Convention, in article 18, paragraph 3, says that each
country shall consider the conditions which it wishes to apply to its
retroactivity statute. The explanation of that provision by WIPO,
the Berne administrative agency, the legislative history of article
18, section 3, is that protection should be given to reliance inter-
ests, especially in situations where a new Berne country has
thrown a lot of works into the public domain because of formalities.
This is a description which fits only two countries, the United
States and the Philippines. Other countries have retroactivity prob-
lems only to the extent a new country which enters Berne may not
have had a copyright relation with the other before that.

Nobody else has thrown copyrights into the public domain as we
have. And the WIPO gloss goes on to suggest that it would be
wrong to expose reliance parties who have legitimately made use
of public domain work to substantial liability and economic hard-
ship, and that that should be reflected in the conditions imposed.

Coming back to the constitutional question, since the purpose of
our enacting the implementing legislation is to comply with Berne's
article 18, and since Berne doesn't require freezing out reliance in-
terests, the Supreme Court can very logically conclude that these
provisions, which all of us are addressing our negative comments
to, weren't necessary. And they are not necessary.

Much more reasonable provisions can be made for dealing with
the interests of reliance parties. Reference has already been made
to the provision in the British statute and all of the other Common-
vvealth country statutes, which does provide reasonable compensa-
tion to reliance parties through the buy-out process.

In addition, we submitted to the U.S. Trade Representative, the
Patent Office and your subcommittees a memorandum on May 6,
1994, in which we described a number of possible ways of protect-
ing reliance interests without violating their constitutional inter-
ests.

And I would like to ask that the committee include a copy of that
memorandum in the record of your hearings. You already have it.
I will give you another copy.

[The information follows:]

216

May 6, 199^

To Catherine Jlold, Esq.

Office of U.S. Trede Representative

Christopher Meyer, Esq.
Michael Kepplinger, Esq.

Patent and and Trademark Office

Prom Irwin Karp and John M. Kernoohan

Center for Law and the Arte, Berne 18

Study Project [Columbia ISilverslty Law School]

Re Suggested Provisions for Proposed Amendment to
Title 17, U.S.C. to Grant Retroactive Copyright
Protection to Eligible Foreign Works Now In
The Itaited States Public Domain

cc As indicated, page 7

Dear Ms. Field, Mr. Meyer and Mr. Kepplinger;

Here are our suggestions concerning the proposed "Retroactive Protec-
tion" amendment to the U.S. Copyright Act you are drafting for the TRIPS
Agreement implementing Bill. These are not final recommendations of the CLA
Berne 18 Study Project. There was not sufficient time to complete them or
review these suggestions with all members of our advisory panel. The CLA
Study Project will make its recommendations in its draft Report which will
be circulated to you and other interested parties.

A. Works Eligible for Retroactive Provision

(1) Contemplated Provision Tou indicated the draft
Bill would grant retroactive copyright to works of other Berne and WTO
members that (i) are still in copyright in their countiy of origin and (li)
are in the U.S. fubllc domain because of: ... first publication jprior to
establishment of copyright relations with the United States; or ... failure
to comply with U.S. formalities Including the renewal clause, the notice and
registration requirements, and the manufacturing clause. Works of other
foreign countries meeting these requirements could be granted retroactivity
by Presidential Proclamation.

(2) Our Comment

Berne Article 18, directly and tff incorporation In the TRIPS
agreement, does not require Congress to grant retroactivity to works of
U.S. origin that were denied or lost copyright prematurely because of our
formalities. Congress has the power to grant them retroactivity on the same
terms as eligible foreign works, but we do not make any recommendation on

217

this queotlon, which involves policy choices beyond the scope of our Study.
We do note that denial of retroactive protection to those American authors
may be seized on by other members to rationalize inadequate retroactive
protection for U.S. works. Furthermore, some authors organizations may
request that retroactive protection be granted to works of American authors
that were denied the full term of protection here through failure to comply
with a formality.

B. Determining the Country of Origin

(1) Contemplated Provision

lou Indicated the draft Bill will provide that the sole
country of origin of a published work would bo the one where literal "ini-
tial" publication occurredi regardless of "simultaneous" publication else-
where. If any co-author of a work Ib a U.S. national, it will not be enti-
tled to retroactive U.S. protection, even though the other co-author(6) are
nationals of Berne or WTO members. Presumably that proviso also would apply
to unpublished co-authorad works.

(2) Our Suggestion

Denying retroactive protection to foreign co-authorCs) of a
work created with a U.S. national and first published In a Berne country is
incompatible with Berne and Section 101 of Title 17 ["country of origin
clause], and is unfair to the foreign nationals. We suggest the Bill pro-
vide that In these circuJnstances, the restored copyright vest in the eligi-
ble foreign co-authors.

C. Vesting of the Retroactive Copyright

We suggest the Bill provide that retroactive copyright vest
In the author(s) of a work, as prescribed in 17 U.S.C. §§ 201 (a) and (b).
The Bill should not contain any language giving effect to prior licenses or
transfers of the retroactive copyright or rights thereunder, or vesting the
retroactive copyright or rights in the grantee or licensee.

You indicated a restored copyright in a work would have the
same expiration date that would have applied if It had initially secured
U.S. copyright — i.e., as If lack of copyright relations or failure to
comply with formalities had not deprived it of that copyright. Eligible
foreign works created after 1977 would thus be protected until 50 years
after the individual author's death whether published or unpublished. Simi-
larly foreign works created prior to 1978 would be protected for that term,
if not published before 1978 (plus additional years if specified In section
303).

We suggest that eligible foreign works first published before
1978 also be protected for life plus 50 years. Often it is difficult to
determine when that publication occurred, or whether the event Involved

218

constituted "publication." Protection, however, could be limited to 75
years from publication (when less than life plus 50 years), if the reliance
party or alleged Infringer proved the date when a "retroactive" work actual-
ly was first published. And any user could be protected from liability if
they made uses of a "retroactive" work more than 50 years after its (indi-
vidual) author died.

D, Formality - Notice of Intention

(1) Contemplated Provision

lou indicated the Bill will require authors to file notices
of Intention In the Copyright Office within one year (from its effective
date) to secure retroactive protection.

(2) Our Objection to Formalitiea

Filing of a notice should not be a condition for obtaining
retroactive copyright in a foreign work eligible for it. Our reasons were
stated at the April 26th meeting. To summarize: the requirement violates
Berne Article 5 (par. 2); it could incite reciprocal-retaliation (limited to
U.S. works) that will deny countless U.S. authors retroactive protection
abroad; it is not required by the Fifth Amendment; and it was not required
under other amendments to Title 17 extending copyrights beyond the expira-
tion dates previously fixed by the Act.

(3) Our Suggestion for An Alternative Provision

if Filing of Notices of Intention Is Required.

If the Senate and House copyright Subcommittees conclude
filing of a notice should be required, we suggest that these conditions be
included in the Bill

. . . the retroactive copyright would vest in eligible for-
eign works on the effective date of the Amendment; and

... there be no time limit for filing the notice; and

... if the notice is filed more than 1 year after the
Amendment's effective date, applicable grandfathering provisions would be
extended by the period of the delay in filing the notice; and

... an individual author could file a blanket notice
covering all of his works entitled to retroactive copyright, which need not
be listed by title if the notice informs that the author is alive, or gives
the date of his/her death.

... such notice could be filed on behalf of authors ly
their professional or licensing societies, without explicit authorization.

219

[Othar altgrnattves to reglatratlon-typ» noticot

(i) The grandfathering period for uoe of a recopyrlghted
work would run from effective date until the author gave
actual or constructive notice to the rellance-ueer, plus x
years;

(ii) The Copyright Office would give official notice
of retroactivity and the periods of its application, in
public notices, search reports, notice on its on-line
service, etc.] (See: N.Y. Times, 5/2/9^, p.1; attached)

Protection of Reliance Interests

(1) Contemplated Provision

lou indicated the Bill will give limited protection to
"reliance parties: — i.e individuals, companies or other organizations that
published, performed, transmitted, or made other direct or transformative
uses of foreign works in the U.S. public domain that are subsequently
granted copyright by the TRIPS copyright amendment.

If the "NAFTA" model is followed (17 U.S.C. §104(a)),
any U.S. national or domiciliary who made or acquired copies of the work
before the TRIPS implementing Act is enacted could continue to sell or
distribute the copies or publicly perforc the work for a grandfathering
period of one year which would commence after the date when a list of works
protected by the retroactivity amendment is published.

As we pointed out at the April 26th meeting, such rainlmalist
protection of reliance interests is unfair, violates the spirit of Berne
Article 18, and probably will violate the Fifth Amendment talcing clause in
many instances. Moreover, as we noted, there is no guarantee that other
countries whose retroactive protection of U.S. works would profit our motion
picture, recording and publishing industries, would adopt our model. They
can grant Berne-compatible retroactivity to U.S. on conditions, such as the
British buy-out clause, far more protective of their reliance interests.

Let's remember that many retroactively protected foreign
Berne works here (and U.S. works abroad) will be free of any reliance-party
limitations on all or most rights under their copyrights since they will not
have been used by reliance parties at all or within a reaRonable period
prior to retroactivity.

Foreign provisions for protecting continuing reliance-party
are more generous and consistent with Berne 18. Britain, Australia and
India, for example, allow unrestricted continued use, subject to the retro-
active-copyright owner's right to buy-out the user at a price negotiated or
fixed by arbitration.

220

(2) Our Suggeationa for 0.3. Proteotlon of
R9llano8--Party tiontlnued Oaea

The TRIPS eunendment to the Copyright Act should contain the
following provisions allowing and limiting continued uses by a reliance
party of foreign works granted retroactive D.S. copyright protection;

I. General Provisions

(a) The provisions should apply to continued uses
here tiy U.S. nationals and domiciliaries, and alao foreigners who made the
uses here, prior to the effective date of the TRIPS amendment.

(b) Provisions allowing continued use of particular
rights in a recopyrighted work by a reliance party after retroactivity takes
effect should only apply to "eligible uses" of those rights (and no

other rights or uses), to wits

those uses of particular rights actively made by the
reliance party in the period commencing 4 years before the effective date of
retroactivity and ending 6 months before the effective date of the TRIPS
amendment (or, ending on the date It was submitted to Congress); and

. . . uses for which a reliance party, in that period,
made a substantial financial Investment to exploit, or binding commitments
for such investment.

II. Dispute Resolution Procedure

Disputes between reliance parties and owners of retroactive
copyright, arising urider the following provisions, would be resolved In an
arbitration proceeding, by a single arbitrator appointed by the Librarian of
Congress from a panel of arbitrators chosen by him. Regulations governing
arbitration would be drawn by the Register of Copyrights. The regulations,
procedures, and rights of judicial review would be adapted from those gov-
erning arbitrations under the Copyright Royalty Tribunal Act of 1993. The
Arbitrator's compensation and costs of arbitration would be paid by the
reliance party, regardless of the outcome.

Ill, Duplicative Reliance Uses

The TRIPS Amendment should provide:

(a) "Duplicative Uses" by reliance parties include:

reproduction and distribution of copies or pho-
norecords of literary, dramatic, artistic and photographic works; audio
visual works; sound recordings; and

221

... "aaooQd«ry oontrlbutions" added l^ the rollono*
party (o.g. subtitles, dubbed dialogue, non- transformative musical arrange-
ments, digeats and condensed versions).

(b) Grandfather Parlod A reliance party could
continue to maJce eligible duplicative uses for a period of 3 years commenc-
ing with the effective date of the TRIPS Act

(c) Extension of Period The reliance party may
commence an arbitration proceeding, within x to y months before expiration
of the Grandfather Period, to seek its extension. Upon clear and convincing
proof hy the reliance party that termination of the period wtjuld cause it
substantial economic hardship, the Arbitrator shall have the authority

... to extend the Grandfather Period for up to an addi-
tional 3 years, on condition that the reliance party pay a royalty, fixed by
the Arbitrator, to the copyright owner during the extended period.

... to award attorneys fee's and costs to the retroac-
tive copyright owner, regardless of which party prevailed, unless the copy-
right owner clearly acted unreasonably and In bad faith In rejecting the
reliance party's request for the period and royalty offered ty the reliance
party.

IV. Translation Uses by Reliance Parties

(a) "Translation Uses" by reliance parties Include
the preparation of a translation of a literary or dramatic work, and the
reproduction and distribution of copies of the translation.

(b) Grandfather Period A reliance party could
continue to make eligible translation uses for a period of 5 years commenc-
ing with the effective date of the TRIPS Act.

(c) Sxteqslon of the Grandfather Period A reliance
party could seek an extension of up to 5 years. In an arbitration proceeding.
No proof of substantial economic hardship would be required. If the arbi-
trator granted the extension, he/she would fix a royalty rate. Same
provision concerning attorney's fees, as In III. (c).

V. Transmission Uses

(a) Transmission usee defined in accordance with
17 U.S.C.ilOI.

(b) Grandfather period - 1 year.

222

VI. Publlo PTformance Uaee

(a) Public performonea U8«8 as defined In 17 U.S.C.

(b) Grandfather Period - 1 year.

VII. Substantial Trans formative Pses

(a) Substantial Transformative Uses are the preparation
and exploitation of those derivative works [defined in §101] that integrate
raaterlal from the re- copyrighted public domain foreign work and substantial
copyrightable material the reliance party has created (or made substantial
comaltments to create). The typical transforoiative work would be a motion
picture based on a play, novel, or story; a musical comedy based on such
works; a literary work that Incorporated substantial material (exceeding
limitB of fair use) from a prior public domain work; etc.

(b) Grandfather period: 10 years.

(c) Royalty. Copyright owner could request a royalty
after "i years. If the parties cannot agree within six months of request,
the issue would be submitted to arbitration, and the arbitrator would fix a
royalty payable commencing with end of -ith year. No attorneys fees or coats
would be awarded, [costs of arbitration to be borne by reliance party.]

VIIX. Educational and Library Uses:

(a) Any prior uses for non-profit educational and li-
brary purposes by individuals and organizations entitled to exemptions and
limitations under §» 108, 110, and 118 of Title 17.

(b) Restored copyrights are subject to all exemptions
and limitations of those sections.

(c) In determining whether non-eligible uses by those
individuals and organizations of recopyrighted works are fair uses, the fact
that such works had been available in the public domain for educational and
library uses shall be deemed a aignifioant factor.

(d) Grandfather Period: 10 years.
» « « »

cc: Senators DeConclnl and Hatch; Representatives Hughes and Moorhead;

Karen Robb, Darryl Panethlere, Haydon Gregory, Bill Patry, Tom Mooney

Eric Smith, Fritz Attaway and Jon Baurgarten

August Stolnhllber, Carol Henderson, Sheldon Stelnabch

223

I absolvie (ermi, stated in grami oi

I ilUIErams, but «lJO Die (XrCfnlaE"
' f "daily value" — a recommfcndeil

ally consumption for (at, saturated
111, cholesterol, sodmm, carbohy-
] rate and liber. The percentages are

lased on a 2,000-caIorie diet. Tbc la-

F.D.A. Throws
Its Best Pitches

C r \-^J ¥ ^l«>«/ I'traho features larger tvp« and

rOY mOOQ i-rfCIOCl jtighlighis the mosi tmporunt infor-
C f ,<fTiaiiOff In boldface.

— — — • 1 The hew rules also make it much

nore difficult to mflate nutritional
•laimS^ Foods will have to meet spe-
:ific criteria before ihey can be de-
.crlbed In terms like "low fat" or

By MARIAN BURROS

■ Curious George, the Goodyear
blimp and Roger Clemens are going
to work tor the Clinton AdmlnlstrB-
ilon. No charge, of courBC.

In a media blitz worthy of Madlum
Avenue, ihe Federal Covemmeni has
enlisied their help In maklrg the pub-
lic aware of the new nuthlton labels
that food makers mual use starting

■high fiber-

The Government will try to reach
jearly everyone, wherever they may
>e. wuh ihe message that the label
las changed Baseball fans In at least
10 ball. parks across the country, In-
:luding Yankee Stadium, won't have
•0 watch television to get the mes-
on May 8. The Goverpmcni haa never j3g^ purlng May, Just as tome of
.. t.- jiose la attendance take the first bite

if their hot dogs, the electronic score-
joardswlU either show one of the
)ubllc "service announcements or
:iash Ihe message "Anew food label:
:heek U out."

I In New York this month, the count-
>rs people who pass through the
;reai y^ite Way will see the cam-
lalgn'islogan on the news zipper that
•raps around the building In the mid-
He of Times Square. And acro&s tha
Mr. Clemens will appear In a telen oun(r>^, the three Goodyear blimps

gone (0 such lengths lo promote new
food regulations.

At a news conference tomorrow, .
Dr David A. Kessler, Commissioner'
of Food and Drugs, Is to announce the
publfc service campaign that will
take George, the monkey made fa
mous In a series of children's books,
the blimp and Mr. Clemens, the Boa-
ion Red Sox pitcher, to places they
have nt-vtt been before

vised pbbllc service announcement,
pitching a "high fast otie" to Donna
E- Shalala. the Secretary of Health
and Human Services. After she
catches the ball, Dr. Shalala says,
"For a healthier diet, use the new
rood label,"

In another spot, Kirby Puckett. an
luifielder for the Minnesota Twins,
ills a single and makes a pitch for the
lew label

The new law, the Nutrition Label-
ing and Education Act, has been ID
years In the making. The most signifi-
cant difference between the old food
labels and the new ones is the nutrl*
tion information panel designed to
show shoppers how one food (its Into
an overall dally diet.

The new panel now Includes not
only the amount of certain nutrients

Continued on Page 30, Column I

i/ill cayy the message as they fly
rom one lob to another at night.

Curious George will be the mascot
or the public service announcements
ind in other educational material to
iiract the under-S crowd. There will
ilso be a booklet for parents and
eachers to reinforce George's mes-
ages. I

-Millions of Brochures

Television stations nationwide
ave agreed to run the public service
nnouncements, WCBS In New York.
ar example, said It would use the
pots three limes a week for three
nonths, The label graphic Is being
cm to newspapers and magazines
/ith. the hope that it will be used In

tubtlc service advert isemeni6
In conjunction with the awareness
ampalgn, the Food and Drug Admtn-
itratlon Is making millions of educa-
lonal brochures available to schools
Ind supermarkets. All of the air time
Jnd the use of the electronic signs has
keen donated. The Govelnmeni's cost

or the campaign over « three-year |

^ei'lod Is about Jl 5 million.

This is the first significart change
)n food labels m 20 yearb, since volun-
ary nutrition labehng was intro-
tuced m the mid-1970s The food In-

fuslry strenuously opposed the orlgl-
al nutrition label but. after living
vith U and learning that It had no
ippreciable Impact on sales, accept-
ed It and was not eager to change.

Dr. Kessler, the most vigorous pro-
wncnt of the new labels, seems wili-
ng to do almost anything to prove
»ow easy ihcy are to understand He
;oniended that he could leach anyone
o understand the new label in 60
i seconds, and to prove It he agreed to
! io shopping with a reporter In a
*laryland supermarket, which, like
nany. already liad some products
' ' with the new labels.

Dr (Ccssler was willing lo teach
' inyono, but the store appeared lo be
I illed \yith people who did not need
kny leaons. Most shoppers who were
I ipproathed already understood the
, lew laljel and were jiencrally compli-
ncntary about Its larger type and

J' v^se ol use.
■The way to r^ ihe"lJoo<l label is
0 read the pcrcem^j,^of daily val
1 ue,- i)r. Kesaier said. "There Is one
> simple rule. If the dally value Is less
\ than 5 percent. It's low. If the dally
value of fat Is 50 percent, then It's
one-half of your daily value."

For those who seemed lo be espe-
cially interested. Dr. Kessler cTis-
cussed the use of claims like "Hght."
"less" and "free," For example, lobe
described as containing "less fat." a
food must contain 25 percent less fat
than the product to which it Is being
, compared A food called "low calo-
1 rie" can contain no more than 40
calories per serving, and serving
, sizes are now uniform within each
category of food.

Dr. Kessler said he considered the
new food label "one of the most Im-
portant public health tools we have'
right up there with exercise and ces-
sation of smoking. "What Is remark-
able about the new food label." he
added, "is that It takes all the dieti-
tian's guidance and reduces It to
something people can use."
, After May 8. companies must put
Ihe new labels on whatever comes off
their production lines, That Includeis
laboui 90 percent of ffrpcessed pack-
jaged foods. Surtliigonauly 8, similar
labelmg will tw reiulr^ on meal and

poultry products, which ara rtgula:
by the Agrlcultur* Dtpartmem ra
et than the Food and Drug Admir
traiion. *

T^;rJ ;i « VJluniary program
20 of the most frequently eaten r.
fruits, vegetables and fish, but u i
comes mandatory if fewer than
percent of a nationwide sample
^ retailers provide the necessary Infc
mat ion.

Serving sizes have been made r
pnly uniform but also more realisti
pr. Kessler said, though some mig!
'disagree. A serving of Hershey
Kisses U 8 pieces, of potato chips. .
pieces

Allowable Health CUIms
Only seven health claims will t
permuted: those regarding the llnV
between calcium and osteoporosis
fat and cancer: saturated, fat an
cholesterol and heart disease, fibe
and cancer, fruits, vegetables Hr.
grams with fit)er and heart disease
sodium and hypertension, and fruii^
vegetables and cancer.

Even with all the changes, npl ev
eryone is satisfied The Nutrition t*^
beling and Education Act rescind
the requirement that bins iontainir^
fresh produce be labeled with tht

i chemical Ingredients In the wax th

covers many of the foods.
Only one state. New Hampshi.

fulfilled that requirement The F D
I never enforced the rule, saying It ft
I unenforceable. Chemicals used
1 some of the waxes, like drihophen;
I phenol, are known carcinogens
; Under the new regulations the on
; requirement is a sign in the store tii
' lists the produce items that have \>t^
\ coated with animal-based wax ar
I another list of the items that ha
) been coated with a vegeuble ar
I petroleum wax or a shellac-bas*^
' one.

Mary Roy. president of Citizen P
I tition Inc.. a consumer group In Nt
Hampshire, has lobbied for enforc
meni of the old chemical-ingredie:
labeling rule since 1967 and now h.'
petitioned the F.DA to reinstate tl-
rule and enforce It

Dr. F. Edward Scarbrough. direi

tor of the Office of Nutrition and Foo

\ Sciences at the'f.D.A., aaid that ih

agency had nofac^ed on Ms. Roy'

' petition but that. 11 Intended to do so

D.A, Is Throwing Its Best Pitches in Blitz
J lAds for the, New Federal Food Labels

continued From Page I '

«.

224

Mr. Berman of California. OK.

Mr. Karp. The sole purpose of the draconian — and they are dra-
conian restrictions — on reliance interests is this so-csdled mirror
image theory which has been referred to. There is no doubt that
we do well to grant retroactivity so that Thailand and other coun-
tries who are not giving us retroactivity will reciprocate, and they
probably will.

But, there is absolutely no guarantee that they are stupid
enough to adopt the reliance-party provisions you are being asked
to adopt. They have industries that are reliance parties who are
making a lot of money legitimately using American motion pic-
tures, American recordings, and American software. If the British
scheme were adopted in their countries, they would continue to use
them. These Grovemments are as sophisticated in copyright as we
are, and unless we engage in trade-tactic arm twisting, there is no
way in the world that they would cut their own throats by adopting
these provisions.

You are being asked to do much harm to American creators and
users of noncopyrighted material on the theory that this will some-
how buy similar treatment abroad for Holljrwood, for Nashville,
and for Silicon Valley, and it is not going to happen. And what we
will end up with is laws in these other countries which give their
reliance interests much greater protection than we give ours and
a law here that is unconstitutional.

Thank you.

[The prepared statement of Mr. Karp follows:]

225

Subcommittee on Intellectual Property and Judicied Administration
House of Representatives

Subcommittee on Patents, Trademarks and Copyrights
United States Senate

August 12, 1994 Joint Hearing on Bills to

Retroactively Restore U.S. Copyrights in Certain

Works of Foreign Origin Now in the U. S Pubbc Domain

(S.2368; H.R. 4894]

STATEMENT OF IRWIN KARP, of the COLUMBIA LAW SCHOOL
"CLA" STUDY ON U.S. IMPLEMENTATION OF BERNE ARTICLE 18

I. Introduction

My name is Irwin Karp. I submit this statement on the House and
Senate Bills to retroactively grant copyright to certain foreign literary,
musical, artistic and other copyrightable works — now in the U.S. public
domain — that originated in Berne or WTO member countries, and are in
copyright there. The Bills do not apply to U.S. works that lost copyright
prematurely, or to foreign works that entered the pubUc domain when their
U.S. copyrights expired.

[A] Retroactive Protection Should be Granted I urge that Congress
grant retroactive copyright protection to those Berne and WTO works,
subject to amendments referred to in (B) and [C] below.

(1) The United States became obliged in 1989 to grant this
protection under Berne's Article 18, and again this year under the
TRIPS/GATT agreement.

(2) U.S. retroactive protection for foreign works in our public
domain may induce other countries with whom we recently established
copyright relations to grant retroactive protection to contemporary U.S.
works that previously fell into their public domains.

(3) Retroactive copyright protection, properly formulated, will
not violate the First Amendment, Copyright Clause, or the takings clause of
the Fifth Amendment.

[B] U.S. Reliance Parties Deserve Better Protection 1 urge the
Bills be amended to provide fair and constitutional protection to U.S.
authors, composers, artists, publishers, distributors of records, films and
videocassettes, educators, librarians — and other "reliance parties" — who
have made legal and legitimate use of foreign works while they were in our
public domain, prior to their retroactive copyrighting by enactment of the
pending BiUs.

226

(1) Berne Article 18 permits and anticipates such protection.
The reliance protection granted by Great Britain and other countries
provides it. So do amalogous provisions in our own copyright Act.

(2) The Bills allow only a short "grand fathering" period for
continued use by reliance parties. These provisions wUl violate the Fifth
Amendment (takings-clause) rights of many reliance parties.

(3) The denial of fair and adequate protection is grounded on a
premise that does not support it and is probably illusory.

(4) The proposed grandfather clause could prompt extensive
litigation against the United States under the Fifth Amendment. There is a
good possibility the Supreme Court would hold that the proposed restrictions
on reliance parties's uses do violate their Fifth Amendment rights, and that
the United States would be subject to substantial liability.

(5) The proposed grandfather clause and prohibition against
subsequent uses would violate the First Amendment rights of reliance parties
who legally borrowed from public domain works in creating new and
copyrightable works that contain, in large measure, their own creative and
expressive contributions. A law permitting retroactive owners of the pubUc
domain works to punish and enjoin the publication of the reliance

parties' expression — which is commingled with former public domain material
— might well be stricken down by the Supreme Court as an infringement of
the reliance-party author's First Amendment Rights.

[C] The Bills' "Notice Provisions Violate Berne I urge the

notice requirements the Bills impose on foreign authors be amended.

(1) They are unfair and probably violate Berne Article 5(2)'s
requirement that "enjoyment and exercise of (protected) rights shall not be
subject to any formality".

(2) These notice provisions may well provoke retaliatory
provisions in foreign laws that will deny American authors, artists, composers
and other individuals retroactive protection under laws of other countries.

II. CLA's Study on Berne Implementation

The Columbia Law's School's Center for Law and the Arts ("CLA"),
chaired by Professor John M. Kernochan, has conducted a study on U.S.
implementation of its Berne Article 18 obligation to grant retroactive
copyright protection to foreign Berne works. I was retained to direct the
study project. We are preparing a report and recommendations that will be
circulated for comment and submitted in final form to your Subcommittees.
We had hoped it would be of use to your subcommittees and the Copyright
Office in preparing a Bill to implement Article 18, as was the Report of the
State Department's Ad Hoc Working Group on U.S. Adherene to the Berne
Convention. However, the drafting process was initiated and conducted by

227

the Office of the U.S. Trade Representative and the Patent Office, not by
your Subcommittees and the Copyright Office.

When we learned they were drafting the retroactivity provisions of
the Administration's GATT Bill, we asked to meet with them. I attended two
meetings and made comments and suggestions about various provisions. On
May 6th of this year. Professor Kernochan and I submitted a memorandum to
the USTR and Patent Office. It suggested changes in the "retroactive
copyright" amendment they were drafting, and which is incorporated in S.
23G8 and, to a substantial extent, in H.R. 4894. I sent copies of the
memorandum to the Chairmen and ranking minority members of your
Subcommittees, your counsels, the Librarian of Congress, and the Register of
Copyrights. I respectfully request that the memorandum be included in the
record of these hearings, and offer a copy for that purpose.

III. The Bills' Provisions for the Protection of Derivative-Work

Reliance Parties are Inadequate. Unfair and Unconstitutional

(A) Reliance Parties "Reliance parties" are authors, publishers

and others who (i) made uses of foreign Berne public domain works —
subsequently restored to copyright — that would have been infringements
under Section lOG were the works then protected by copyright and (ii)
continue to make those uses after the TRPS Agreement becomes effective for
the United States. (S. Bill, Sec. 104A (j)(5);H.R. BiU.Sec. 104A (g)(j).
The definition also covers parties who made a substantial monetary investment
in creating works that incorporate major portions of restored works.

[B] Derivate-Work Uses

(1) Reliance parties would include those who legaDy made use of
then-public domain Berne works to create derivate works. Among these
parties: U.S. authors, artists, composers, arrangers, translators, motion
picture companies, videocassette producers, educators, software programmers,
and many other creators. This creative use of public domain works was
legal, and also consistent with underlying constitutional and public policy
(see: E.g., Bonito Boats v. Thundercraft Boats. 489 U.S. 151 (1989);
Stewart v. Abend. 4495 U.S. 207, 228 (1990), citing Sony v. Universal, 464
U.S. 417, 429 (1984). It was also in keeping with venerable literary and
artistic traditions.

(2) Derivative works by reliance parties include:
Translations of then-public domain books, plays, poetry by foreign Berne
authors. Plays, films or television dramas based on then-public domain
foreign novels or other works. Transformative arrangements of then-pubbc
domain foreign popular and classical musical compositions. Many other types
of legally made derivative works also would be affected by the restoration

of copyrights in the underlying public-domain foreign works which they
borrowed from.

Id The "Taking" of Derivative Works"

When the retroactive copyrights in such underlying foreign

228

works become effective, the pending bills will effectively destroy reliance
parties copyrights in derivative works based on the underlying newly-
copyrighted works.

(1) Two examples: An American dramatist who legally
borrowed from a public domain British novel to create a play. An Arabic-
speaking American translator who translated a prize-winning Egyptian novel
which fell into our public domain on publication because Egypt and the United
States had no copyright-treaty relationship.

(2) The present law. The American dramatist secured a valid
U.S. copyright on his play, as a derivative work, under Section 103. It
protects the material he contributed, for his life plus 50 years, but not
material from the public domain British novel. If anyone copies substantially
from his play, using his material, he can sue for infringement. Assuming the
Bills are not enacted he could continue to exploit the copyright for his
lifetime ; earn substantial income for several years, if the play were
successful; sell motion picture and other rights in it; and pass it on to his
heirs, whose tax-basis would be its then market value and who could continue
to exploit the copyright for another 50 years. The American translator's
copyright in his translation of the Eqyptian novel could similarly be exploited
by him and his heirs until 50 years after his death.

(3) The effect of the Bills. If the Bills are enacted in their
current form, the American dramatist's derivative copyright in his play, and
the American translator's derivative copyright in his translation, will be taken
from them. Technically, this will occur when the TRIPS Agreement becomes
effective with respect to the United States, since the restored work originated
in a Berne or WTO country. On that date, the underlying foreign works
are protected by U.S. copyright. Continued use of the American play or
American translation would be an infringement of those restored copyrights
(Abend v. Stewart, supra.) It also would be a criminal offense under
section 506, if willful and done for profit.

Continued use of the derivative work would subject its copyright
owner to the civil remedies for infringement 12 months after the Federal
Register publishes a a notice of intent to enforce the restored copyright filed
by its owner (or exclusive licensee) filed in the Copyright Office by the
owner of the copyright in the restored is, or 12 months after actual notice of
intent is served on the authors of the derivative-works play and translation.

At that point the derivative work owner has effectively be stripped
of his copyright. Its continued exploitation becomes a criminal offense. [Sec.
506 J. Even if prosecution is unlikely, the act is no less a crime. Moreover
its continued use of the derivative work exposes its owner to suit:
judgments for damages and profits can be awarded against him; the use can
be enjoined; he faces the heavy expenses of defending an infringement suit
he cannot win; and must pay at least his own attorney's fees which definitely
will not be contingent fees. His derivative copyright is now useless and
valueless.

229

IV. A Derivative-Work Copyright is Property
Protected by the Fifth Amendment

A derivative work copyright is personal property. It is a collection
of exclusive rights (Sec. lOG) which prevent others from using the work. It
can be sold, mortgaged, or otherwise "transferred ... by any means of
conveyance ... and may be bequeathed by will or pass as personal property
Oby the applicable laws of intestate succession." (Sec. 201(d)) The proposed
retroactivity provisions will deprive its owner of all rights of use.

Copyrights, patents, trade secrets and similar forms of
intellectual property are protected by the Fifth Amendment's takings clause.
Ruckelshaus v. Monsanto Co... 476 U.S. 986, 1002-1003 (trade secrets are
property, "consistent with a "notion of 'property' that extends beyond land
and tangible goods and includes the products of an individual's 'labor and
invention.'"] See also. Comment (PRIVATE PROPERTY-FIFTH AMENDMENT).
91 L. Ed. 2d 582 (1988), Supreme Court decisions on patents. Sec. 21, at
630-621.

V. The Governing "Takings" Principles

1. The Supreme Court has made it clear that no general formula
exists for determining when "justice and fairness require that economic
injuries cause by public action be compensated for by the government (under
the Fifth Amendment) rather than remain disproportionately concentrated on a
few persons. (ciUtion omitted.") Penn Central v. New York City. 498 U.S.
104, 124 (1978). See also decisions cited at 89 L. Ed. 2d 977, 989.

2. The Court said it had "frequently observed that whether a
particular restriction will be rendered invalid (under the takings clause)
depends "largely upon the particular circumstances (in that) case,
(citations omitted) (emphasis added)". Penn Central v. New York City, at
124; and decisions cited at 89 L. Ed. 2d, 977, 989. It also stressed that this
the decision involved "essentially ad hoc factual enquiries", which address
various factors including the economic impact of the regulation on the claimant
and extent to which the regulation interferes with investment-backed
expectations, id.

3. Moreover the Court has invoked the takings clause when

(a) The regulation forces some people alone to bear public
burdens which the public should in all fairness bear (citation omitted) Penn
Central v. New York City, at. 123. Webb's Fabulous Pharmacies Inc. v.
Becwith. 449 U.S. 155, 1163 and

(b) When the regulation is "not reasonably necessary to the
effectuation of of a substantial government purpose." Dolan v. City of
Tigard. U.S. , 62 LW 4576, 4589 (June 24, 1994), citing Nollan v.
California Coastal Commission. 483 U.S. 825 (1987) and Penn Central v. New
York City, at 127.

230

VI. Under These Principles. The Bills' "Taking" of

Derivative Copyrights Violates the 54th Amendment

When these criteria are applied to the meager protection provided by
the Bills to reliance parties' derivative copyrights, it is obvious that the
resulting "taking" of those copyrights is not reasonably necessary to
effectuate the substantial government purpose involved, and that it place an
unnecessary burden on derivative works copyright owners which should be
shared by all. The government should compensate them if Congress wants to
enact these restrictions, which were drawn in their present form to serve,
albeit without probable effect, foreign economic interests of conglomerate
motion picture, sound recording and software manufacturers.

(A) The Primary Purpose of Retroactivity

The primary purpose of granting retroactivity to foreign Berne
and WTO works in our public domain is to comply with the Berne Convention,
and (thus) with TRIPS. To accomplish that purpose it is not reasonably
necessary to deprive owners of us derivative works copyright their rights to
the extent provided in the Bill.

(1) The Berne Convention does not require this. On the

contrary it permits much more protection of reliance parties. And the
provisions we recommend in our May 6th memorandum to USTR and your
Subcommittees are completely compatible with Berne Article 18.

The official commentary on the Convention, the World
Intellectual Property Organization Guide, at page 101, says retroactivity is
particularly important when a new Berne member has thrown many works into
its public domain because "of the failure of their authors to observe the
formalities demanded" by its laws. That's us. Therefore "thought must be
given to those (reliance parties) who have, quite properly, taken steps to
exploit those works and who would be financially embarrassed, to say the
least . if the authors suddenly acquired exclusive rights to control what they
(the reliance parties) had been freely doing" with the then-public domain
works retroactively restored to copyright. WIPE, Berne's administrative
agency, then says: It is a matter therefore for each member country to
decide on the limits of this retroactivity, (our emphasis)

(2) The Commonwealth Formula. In keeping with this
philosophy. Great Britain, Australia, New Zealand, Ireland, India and the
Union of South Africa — Berne members — all provide fair and reasonable
protection to reliance parties. Their copyright statutes provide that after
retroactive copyright vests in a former public domain work, reliance parties
can continue their exploitation of that work until and "unless the owner of
the (retroactive) copyright or his exclusive licensee (if any) pays such
compensation as, failing agreement, may be determined by arbitration."
United Kingdom, Order in Council, No. 988, June 13, 1989. The same
provision had been in force for many years under previous Orders in
Council. The other Commonwealth countries have similar retroactivity
provisions.

231

(3) U.S. precedents. Congress has recognized the need to
fairly protect interests analogous to those Of reliance parties, and has given
that protecUon in Sections 303, 304(c) and 405(b) of the Copyright Act.
The Court of Appeals (9th Cir.) also did so its "Rear Window" (Abend v..
Stewart) opinion which was affirmed by the Supreme Court.

(4) The public interest. The public interest is not benefited
by denying fair and equitable protection to U.S. reliance interests. Nor is it
harmed by granting that protection. Granting retroactive copyright to somg
public domain works does not increase the incentive for authors to create in
the future, nor does harsh restrictions on derivative- works reliance parties.

(5) The mirror-image theory. A primary reason for the
proposed limited and inadequate protection of American reliance interests is
the desire of the motion picture, recording and software industries to avoid
having other countries protect their reliance interests who are now legally
using U.S. works in their public domains.

When these countries grant retroactivity, the theory goes, they
will deny their reliance interests real protection - if we do so now. But this
is only a theory, and an unlikely one. Most foreign countries, including the
Commonwealth countries, already grant us retroactivity. They will not
change their laws to restrict protection of their reliance parties. Nor will the
few important countries who presently do not retroactively protect U.S.
works When they do grant retroactivity they can decide what protection they
will grant to their reliance interests. There is nothing to stop them from
adopting the British et al buy-out provision. Or to borrow the Congressional
formula of sections 203 and 304(c), or 405 (a), or the 9th Circuit's Abend v.
Stewart approach.

VI. The Fifth Amendment Will Require The U.S. to Pay Just

Compensation To Reliance Parties Prohibited From Continuing
Previously-Legal Direct Uses of Former Public Domain Works

[Al The Takings Clause Will Apply

(1) Absent fair and reasonable "grand fathering" protection
for their economic interests, the Bills will violate the Fifth Amendment rights
of authors, publishers, producers, distributors, and other reliance parties
who had legally conducted enterprises involving the reproduction,
publication, performance and other uses of foreign works that are now
restored to copyright.

They wiU be unable to recoup costs, they will be denied the
opportunity to continue earning income from their formerly legal enterprises,
and whatever inventory of books, records, etc they are left with will be
valueless.

The Commonwealth countries recognized the unfairness of this
consequences , as did the WIPO commentary, and their "Buy-out" protection
for reliance parties applies to these enterprises as well as the creation of
derivative works.

232

(2) The birds and booze cases are not analogous. In Andrus
V. Allen. 444 U.S. 51 (1979), the Court held that prohibiting the sale of
parts of endangered-species birds was not a "taking" of such parts owned by
collectors. The owners of the parts, said the Court, could still transport,
devise or exhibit the parts for a fee. Under the Bills, the owner of a
restored copyright can prohibit a reliance party from making any use of the
former public domain work, including the sale of copies or exhibition of the
work for a fee.

Andrus. and in the prohibition cases (e.g. Mugler v. Kansas
123 U,S, G23 (1887) and Hamilton v. Kentucky Distilleries. 251 U.S. 146
(1919), the statute prohibited all sales of the proscribed products to serve
the public interest. Here, that is not the case. The continued use of
eligible foreign public domain works or derivative works based on them is not
proscribed to protect a "public interest." The only legitimate public interest
at stake is adherence to the Berne Convention and that does not require
inadequate protection of reliance interests. In addition, no ban is place on
the continued use of U.S. public domain works that would have been in
copyright today had they not failed to comply with one of several formalities
~ as was the case with many foreign works that will be given retroactive
copyright.

VII. The Notice Requirements of the Bill

Will Violate the Berne Convention

For the reasons set forth in our May Gth memorandum, we believe the
notice requirement of the Bills violate article 5(2) of the Berne Convention
which requires that the enjoyment and exercise of copyright should not be
conditioned on any formalities. Ironically, many foreign works that will be
granted retroactive copyright fell into our public domain because they failed
to comply with such formalities, including the failure to file a "notice"
claiming renewal copyright. The Bill would theoretically return their lost
copyrights, but then deny them effective protection unless they filed another
"notice" which many will not — for the same reasons which brought about
Berne's Article 5(2), the 1992 Automatic Copyright Renewal Amendment, the
1989 Berne Implementation Act's repeal of mandatory copyright notice, and the
elimination of mandatory registration and the manufacturing clause in the 1976
Copyright Revision Act.

Irwin Karp

40 Woodland Drive

Rye Brook, N.Y.

233

Mr. Herman of California. Thank you. I am not sure I under-
stand all this, but let me just ask you a couple questions because
I think if I do understand it, it would be pretty interesting.

Mr. Karp, initially you talked about — how do you phrase it, reli-
ance— how do you — ^your phrase, reliance

Mr. Karp. That is in the bill, the reliance party.

Mr. Berman of California. The reliance party.

Mr. Karp. The reliance party is either an individual or organiza-
tion that has made use of a public domain foreign work which will
now be restored to copyright.

Mr. Berman of California. And by definition, then a bootlegger,
a person who is being protected under the law — let's talk about
your reliance party in Thailand who you think is not going to be
stupid enough

Mr. Karp. They are not bootleggers. Anybody who lawfully

Mr. Berman of California. What if Thailand copyright law does
not make them bootleggers but

Mr. Karp. I am not making myself clear. The Thailand copyright
law protects our works, as well as their works, against unauthor-
ized reproduction. It does not protect, however, those American
works which were produced before we entered a copyright treaty
with Thailand or joined Berne Convention. I forget how we estab-
lished it. The whole issue there is not bootlegging.

The whole issue here is how people who legally use property be-
fore the retroactivity statute is enacted are to be protected against
the economic consequences described in the Berne articles.

Mr. Berman of California. Are the individuals who spend a great
deal of effort in producing the creative work

Mr. Karp. The bootleggers?

Mr. Berman of California. No. The people who spent the effort
in producing the creative work, the book, the record, the movie,
with the expectation that they would enjoy the fruits of that effort
from the revenues in the United States, but because they screwed
up on one or more of some very technical formalities, receive no
protection, are they in some equitable sense a party that should be
viewed as a reliance party that can have some expectation that be-
cause they didn't publish and give a proper notice in every country,
do every act of the formalities that was required of them, they lost
all protection and their work is in the public domain for that pur-
pose? Is there any equity on

Mr. Karp. Oh, sure. There is equity, which I have argued over
and over again in the appellate courts, on behalf of people like
that, sometimes successfully.

The fact is when someone's work has fallen into the public do-
main here or in any other country, it is not only legal, it is legiti-
mate and morally proper for other people to use it. And other peo-
ple do both directly, by reproducing it, or indirectly, as Shake-
speare did and a lot of American playwrights and authors do, by
borrowing the plot and other copyrighted material.

Mr. Berman of California. Is it immoral or illegal or unconstitu-
tional to say at some point, "We are not going to seek back the rev-
enues you got for using that work that mistakenly fell into the pub-
lic domain, but from this day forward, you can't do it anymore." We
are going back to protecting the guy who created the work.

234

Mr. Karp. Oh, I am all for that. I was for that before most of
the people here heard of the word retroactivity. I am for it but on
the condition that you also protect the reliance party.

Let's remember, under both bills, once retroactivity vests, no one
who hasn't made a use of the work without permission can there-
after do it. So immediately you are restoring work of the creative
community involved here to full protection under our law.

All we are talking about is the situation, both here and abroad,
of people who exploited the work in good faith and in fact served
the public interest by distributing these works or creating new ones
and incorporating them. When they are now caught up in this
change in American law which retroactively makes something that
was public property private property, they are caught up and can
suffer loss. There should be some way of mediating between the
two interests. And we have proposed different ways of doing it in
the memorandum I just referred to.

Mr. Berman of California. All right. So you are not sa3dng that
that person has some unlimited, unfettered right because they hap-
pen to have exploited before retroactivity went into effect.

Mr. Karp. No. There should be a grandfather period longer than
is permitted in the bill. There should be provisions for statutory li-
censing so that the present user can get some compensation but
the new copyright owner will also get compensation. These are all
outlined in the memorandum and these were all ignored by the
USTR in a process which was a very closed process.

I don't think you should for a minute assume that this drafting
process equaled that which the House conducted, for example,
when it drafted the Berne implementing legislation. There, at
every step of the process, the proposed legislation and each draft
was available for comment. There were hearings at which all par-
ties who had an interest, including educators and librarians, dis-
tributors, could come in and give their comment. That didn't hap-
pen here.

Mr. Berman of California. Let me ask the professors for a sec-
ond. What do you think happened? Do you share the same opinion
on this takings problem in the context of it is probably limited to
derivative works and only

Mr. VOLOKH. The takings problem, I believe, is most acute for de-
rivative works. There is also some degree of a takings problem as
to copies under the Hughes' bill, although less certainly so.

Mr. Berman of California. Let's assume it is not a closed issue,
but you think there is a potential problem there.

Mr. VOLOKH. Exactly.

Mr. Berman of California. Let's assume we do this and you turn
out to be right. What is the likely court remedy? Is it not to strike
down the retroactivity?

Mr. VOLOKH. Not at all.

Mr. Berman of California. Wouldn't they create some license?

Mr. VOLOKH. I believe the likely court remedy will be to award
the payment of money. Somebody will sue the U.S. Government
saying, you have taken my property by this regulation. Under that
circumstance, the court wouldn't have authority to say, "Oh, we are
going to award a license." The court isn't then interpreting the act.
It isn't seeing whether the act applies to something. The act has

235

already been conceded to apply to the derivate work. The court is
just being asked to determine whether there is an entitlement to
compensation, and the amount of compensation. I would assume
the Court of Claims would say, prove your lost value and the
Treasury will have to write you a check.

Ms. Perlmutter. If I might, the result might be different if you
were talking about the copyright clause and not the takings clause.
In that situation, the court might strike down at least that portion
of the statute that deals with derivative works, which is where I
see the potential problem.

Mr. Berman of California. All right. Mr. Becerra.

Mr. Becerra. Thanks.

I also am a little puzzled on some of this. Let me ask a question.
I believe. Professor — let me make sure I pronounce his name cor-
rectly. Is it Volokh?

Mr. Volokh. Close enough for government work.

Mr. Becerra. OK. You mentioned under the DeConcini bill,
there may be less of a problem with the taking because it permits
the party with the derivative right to continue to sell off the prod-
uct.

Mr. Volokh. Let's say — I am sorry

Mr. Becerra. Go ahead.

Mr. Volokh [continuing]. Let's say that you have made, before
you were given notice, 10,000 copies of some work. Under the
DeConcini bill, you have only a year to sell them in bulk. So if you
were the original copier, you are going to have to find a bunch of
distributors who are willing to sell it, and you will probably have
to sell at some discount in order to get rid of all the 10,000 copies
in 1 year. But the distributors will say, you know, it is a good deal.
We will put them on our shelves and people will buy them, so fine,
we will do it. You, as the copier, will then get at least part of your
money back.

However, under the Hughes' bill, the retail distributors will say
to themselves: Wait a minute, after the year is done, we won't be
able to sell copies even one at a time, to consumers, so we are not
going to buy these 10,000 copies. They are just going to end up
worthless to us. So essentially the value of the copies will be lost.

That having been said, I recognize that the copiers are in a less
sympathetic position than the derivative work maker, because they
haven't invested a lot of creativity. But they might have invested
a substantial amount of money and effort into doing that, enough
that they might have some claim to at least partial compensation.

Mr. Becerra. But under the DeConcini bill, is it literally one
work at a time that you can sell off at the 12-month period?

Mr. Volokh. Exactly. The copier will have to sell in bulk to re-
tailers all the stuff during the 1-year period. But the retailers, be-
cause their business is generally selling to consumers one copy at
a time, will be willing to buy those 10,000 copies because they will
know they will be able to sell them.

Mr. Becerra. So let me make sure of the distinction. The party,
the derivative party sells off in bulk for a year.

Mr. Volokh. Yes.

Mr. Becerra. After that year is reached

236

Mr. Karp. Those aren't derivative parties, Congressman. That is
a direct use. Derivative use involves somebody who created a play
from the book and wants to perform the play or a movie and wants
to show the movie. This is a direct use, just a reproductive use.

Mr. Herman of California. They are not copies of derivative
works. They are copies of the work.

Mr. Karp. That is just ducking a minor problem in order to ob-
scure a major one. The major one is the people who create the
work.

Mr. Becerra. Let's call the people who create the work, whole-

Mr. Karp. No, they are not wholesalers. Wholesalers just buy
books from a publisher and distribute them to retailers. That isn't
the real problem here. No wholesaler in real life is sitting on the
shelf with 50,000 copies of anybody's book or books. The big prob-
lem here is the publisher who has invested a lot of money, in some
cases, to prepare the book or several books, produce copies, pay au-
thors where there is a translation, and is going to be choked off
after a year and may not have even recovered his costs, no less the
profits he would have been entitled to earn on his investment. This
wholesale problem is a little pimple on whatever aspect of a whole
you want to call it.

Mr. Becerra. So the party most hurt here is the retailer if there
is no opportunity to sell off the works.

Mr. VOLOKH. I understood your question to apply to the situation
of somebody making pretty much literal copies. In that situation,
I think everybody along the chain would be hurt by the Hughes'

bill.

Mr. Becerra. And under the DeConcini bill?

Mr. VOLOKH. Under the DeConcini bill, basically some people
along the chain. The original copier will suffer, the retailer won't
suffer much. The consumer will actually benefit a little bit.

Mr. Becerra. Do you think that the DeConcini bill would be suf-
ficient to allow a court to decide that there in fact has been no tak-
ing?

Mr. VoLOKH. As to somebody making literal copies, yes, I think
so. As to somebody making a derivative work, which, remember,
can involve millions of dollars in investments, such as a movie
based on a book, the DeConcini bill will not be helpful.

Mr. Becerra. We are talking after the fact. If all this takes ef-
fect and we have the DeConcini language enacted and we are really
talking about only those who produced something before DeConcini
took effect

Mr. VOLOKH. That is right. Those who have produced derivative
works before DeConcini took effect but want to continue exploiting
them after its effect.

Mr. Becerra. So the playwright who wants to continue with a

play

Mr. VOLOKH. Exactly.

Mr. Becerra [continuing]. How would the DeConcini language,
if enacted, play out for, say, the playwright?

Mr. VOLOKH. Well, the plajnvright has produced a play based on
a book. The DeConcini language will help him if he, let's say, has
a bunch of printed copies of the play that he wants to sell to peo-

237

pie. There he will have more than a year, perhaps, to sell them one
at a time. But that is not the way a playwright makes his money.
The playright, like the movie maker or the writer of another book,
makes the money off the derivative work itself, by staging the play
or perhaps by authorizing other people to stage the play. So the
DeConcini bill won't make much of a difference to the playwright;
its main difference from the Hughes' bill has to do with the
saleability of previously made copies.

Mr. Becerra. The movie maker. What about the movie maker?

Mr. VOLOKH. Nor to the movie maker. The movie maker might
have a whole bunch of videotapes that he has made beforehand
that he wants to sell off. The DeConcini bill will help him some.
He wants more thsin that. He also wants to be able to license the
movie for showing on television or on cable.

Mr. Berman of California. Will the gentleman yield?

Mr. Becerra. Sure.

Mr. Berman of California. Can somebody tell me of a movie that
has been made from a work that has fallen into the public domain
not because of the end of a limited time period but because of a
failure to comply with a formality? I wonder how much time we are
debating a nonexistent issue.

Ms. Perlmutter. It does happen. I know it happened in my
practice once or twice.

Mr. Berman of California. What is the movie?

Ms. Perlmutter. Well, I would rather not say.

Mr. Karp. You are putting us in a very difficult position for this
reason. Publishers who use public domain work don't want anybody
to know they do it. I will give you one example.

We have been conducting a series of symposiums as part of our
study. We did one on literary works. One of the participants, an ac-
tive practitioner, said, Oh, I know one publisher who has a long list
of public domain works. And I said. What is its name? He said, I
can't tell you that. Because he doesn't

Mr. Berman of California. Can you amend your notion of reli-
ance party to include people who don't feel guilty about

Mr. Karp. You are looking for criminal intent when it doesn't
exist. They don't tell people, because if other publishers know it is
in the public domain, some are likely to publish.

Ms. Perlmutter. Let me say, publishers and movie companies
do spend a significant amount of time researching the status of
public domain works they are interested in using, so this is some-
thing that comes up fairly often.

Mr. Berman of California. Many times they get clearance of the
people who produce those works even though they don't have a pro-
tected work.

Mr. VOLOKH. Actually

Mr. Karp. They may not for this reason. First of all, we are not
privy to all of the made-for-television-movie situations of small pro-
ducers who make pictures that are shown in art houses which may
later make money or not. And as I say that, I stop to think, making
money isn't the only point here, at least a lot of money, from the
point of view of big Holl3rwood studios.

Mr. Berman of California. I grabbed the question from Mr.
Becerra.

238

Mr. Becerra. That is OK. You can conclude the answer.

Mr. Karp. Therefore, it is not that easy to do. In the motion pic-
ture distribution industry, some people make a lot of money out of
pictures in the public domain. There are videocassette distributors
who have large catalogues of videocassettes and movies that fell
into our public, Italian, French, and even American domain. A lot
of Americans movies, because Holl)rwood isn't really that careful, a
lot of American movies have fallen into the public domain after
first term and people have exploited them.

Now, one of the problems with this bill on the takings point is
that it really isn't in the public interest to restore copyright to pub-
lic domain works on draconian terms to reliance interests. It
doesn't serve anybody's purpose except a few big industries, and it
doesn't serve it in any tangible or practical way from the point of
view of the takings clause.

Mr. Berman of California. What big industry would it serve?

Mr. Karp. Motion pictures, recordings, and software.

Mr. Berman of California. Why? You just sat here and told me
why the most costly of the shaftings that can come from this is the
expensive motion picture made from a work in the public domain,
and you are saying that that is the industry that is

Mr. Karp. I never said that. I didn't talk about

Mr. Berman of California. Well, the panel

Mr. Karp. No, no. Movie companies who spent a lot of money
don't usually use public domain works. Sometimes they do. But
that is a different problem. They can get two elephant men if they
both use public domain works. But that isn't the problem we are
concerned with.

The interests in movie companies I am talking about, movies,
record companies, and computer software people, involve what they
think will be the mirror image abroad. They don't care about what
happens here. They are only concerned about what happens
abroad. And I think that the process helped them because they had
two very S5nnpathetic ears, Mr. Kantor and Mr. Lehman, who both
represented those industries before they took public office. I don't
know that they had anything to do directly with this process, but
I do know this.

Mr. Berman of California. I think if they were around to rebut
your attack on their motivations, then I think they might want

Mr. Karp. I haven't attacked them. If I were, I would talk about
the appearance of conflict of interest, which is probably more im-
portant than actual conflict. I would talk about a judge who, in
their situation, would never sit on a case involving that issue.

The other point

Mr. Berman of California. All right. I yield back to Mr. Becerra
with the notion that I really appreciate your interest in keeping
this on the merits.

Mr. Karp. I am. I was trying to. I was trying to get to the other
point.

Mr. Becerra. Thank you, Mr. Berman.

Let me ask one final question. If we find that a court decides
that under either bill — let's work mostly with the DeConcini bill be-
cause it is less clear there is a takings problem under DeConcini
versus the House bill. What would be your recommendations to try

239

to preempt the major problems that we would have if, in fact, the
Government would be straddled with the cost of now compensating
someone who has suffered a taking?

Mr. VOLOKH. To try to preempt right now at the drafting stage,
or afterward when the court finds a taking?

Mr. Becerra. Let's take both.

Mr. VOLOKH. I think that there is not a lot to be done afterward
when the bill for constitutionally mandated compensation comes in.
By then, the damage to the reliance party would have been done.

Mr. Becerra. If we pass, if we enact the legislation and before
anyone files any claim in court on a taking we come up with some
belief, we are still — the Grovernment would be covered.

Mr. VoLOKH. Oh, yes, if you change the law before anybody files
a claim, then they would be covered by the new law. I g^ess one
of the problems then is to the extent the new law diminishes the
rights that were granted by the first law, you could say the new
law itself works a taking. Because here you gave somebody these
pretty broad rights and then you narrow them. Then somebody else
would start complaining.

Mr. Becerra. OK, so prior to enactment of any legislation?

Mr. VOLOKH. At the drafting stage, it seems to me that you can
go a long way and even make the reliance party squirm a bit before
you get to a taking. For example, a mandated royalty on profits
after the original investment was recouped would be no problem.

A buyout provision, I believe, would be no problem so long as the
buyout terms would be reasonable. I think that the fact that such
provisions are also present in foreign regimes might give a court
some comfort because then they could look at the record of those
regimes and say. Well, you know, this hasn't really hurt reliance
parties that much. So I think there are a lot of things that you
could do working from the DeConcini bill.

Mr. Becerra. I don't know. Professor Perlmutter, Professor
Karp, do you have any comments?

Mr. Karp. No. I agree.

Ms. Perlmutter. I think from the copyright clause perspective,
one very workable solution might be to have a buyout period fol-
lowed by a compulsory license for derivative works only, which the
Supreme Court has suggested might be a sensible thing to do for
transformative works like that.

Mr. Karp. I just wanted to point out that I am not just talking
off the top of my head about the alternatives. We submitted them
in May. They are reasonable. They parallel other provisions of the
Cop3Aright Act in force right now for alleviating the economic prob-
lems of people caught up in the same situation, not retroactivity
but analagous situations, and no attention was paid.

And I am really concerned by the fact that had this process gone
through the copyright subcommittees and the Copyright Office,
which was frozen out of the process deliberately, we would not
have had the bill we have today. And I don't think it is just coinci-
dence that the Copyright Office was frozen out. One of the things
that bothers me is when they did draft a bill for Senator Mathias,
they had a much better provision for protecting reliance interests.
Maybe that is why they are not allowed into the picture right now,

Mr. Becerra. I have no further questions.

240

Mr. Berman of California. Thank you. I appreciate the testimony
of the professors and the conspiracy theories of Mr. Karp.

Mr. Karp. And yours, too. Thank you.

Mr. Berman of CaUfornia. I want to welcome the distinguished
panel we have next. We will first hear from Eric Smith, who is gen-
eral counsel of the International Intellectual Property Alliance.

The last time Mr. Smith testified, he had some problems telling
us what was wrong with a Credence Clearwater Revival band par-
allel import, I am told.

Mr. Smith. I remember it well, Mr. Berman. Thank you very
much, Mr. Berman.

Mr. Berman of California. I am happy to tell you, Eric, that that
particular album is now available in an authorized U.S. version.

Mr. Smith. Somebody was very attentive at the hearing and real-
ized that that should have been brought into this country, made
here.

Mr. Berman of Cahfornia. OK

Mr. Gerson. Thank you.

Mr. Smith. Thank very much.

Mr. Berman of California. Let me introduce Mr. Gerson first, be-
cause those are my instructions. Our next witness is Jay Berman,
chairman and chief executive officer of the Recording Industry of
America. I don't know if Jay likes Credence Clearwater, but we al-
ways value Jay's advice and assistance.

Mr. Jason Berman. It is on my hit list.

Mr. Berman of California. His candor and willingness to reach
a constructive compromise are far too rare even in his own indus-
try. Our third witness is Matt Gerson of the Motion Picture Asso-
ciation of America. Matt is going to attempt the impossible, to read
a speech written by Jack Valenti and still sound like Jack. I look
forward to that.

Our final witness is Larry Urbanski, president of Movie Crafts,
Inc., testifying as the chairman of the Fairness and Copyright Coa-
lition.

Mr. Smith.

STATEMENT OF ERIC SMITH, EXECUTIVE DIRECTOR AND GEN-
ERAL COUNSEL, INTERNATIONAL INTELLECTUAL PROP-
ERTY ALLIANCE

Mr. Smith. Mr. Berman, thank you very much.

First of all, let me just say, there have been a lot of very interest-
ing questions that were asked that the last panel asked and an-
swered, and we look forward to being able to respond to some of
those during the question period.

At this point, I just wanted to let all of you know that this legis-
lation is of vital importance to the U.S. copyright industries. As you
know, the IIPA is a consortium of eight trade associations which
together represent 1,500 companies. And I might add that all of
those companies are reliance parties under this bill, so we would
like to speak to that issue.

Two of our members are here. Of course you know and you have
introduced Jay Berman, chairman, CEO of RIAA; and Matt Gerson,
who will sub wonderfully for Jack. We know that already.

I will be brief, Mr. Chairman.

241

We consider this legislation to be of critical importance to the
United States, to U.S. trade and to the standing of this country
within the world trading, as well as the copyright, community. I
want to turn to some specific problems of three industry sectors not
personally represented here, the software, music, and book publish-
ing industries. But before I do, I wanted to summarize the position
of the over 1,500 companies that we represent.

First, we believe that adoption of this legislation in the fast-track
bill is necessary to comply with our international obligations under
the new GATT TRIPs agreement.

Second, failure to do so will, in our judgment, undermine the
ability of the United States to press other countries to implement
the same sort of protection in their implementing legislation cur-
rently pending in many legislatures around the globe.

Third, we are concerned that if restoration legislation is not
adopted in this country, we may very well be a defendant in the
first GATT case to be brought ailer the WTO goes into effect, and
we fear that we may lose that case. This will be very damaging to
the United States and to our reputation as a world leader in the
copyright field.

Welcome back, Mr. Chairman.

Mr. Hughes [presiding]. I apologize for the interruption but, un-
fortunately, I had to appear before the Rules Committee on press-
ing matters.

Mr. Smith. Mr. Chairman, you arrived at my most important
point. Fourth, the trade stakes are huge.

Mr. Hughes. Eric, I thought somebody gave your testimony ear-
lier today.

Mr. Smith. It was a fair use. Copying is the sincerest form of
flattery, say the Chinese, so I was very honored.

My colleagues will give you details and we can refer you to our
written testimony on this point. In just the few countries we detail
in our written statement, Russia, the other CIS States, States in
Eastern Europe, in the Middle East, we already lose over $2 billion
annually, a not insignificant part of which is attributable to this
very issue.

Mr. Chairman, any legislation which emanates from this Con-
gress will benefit some and prejudice others. The job here is to
carefully weigh the pluses and minuses. Some reliance users may
indeed be prejudiced, though we believe the bills can and do mini-
mize this prejudice, as is the job to be done here. But on balance,
there is simply no question that the economic stakes in terms of
revenue and jobs in this country is overwhelmingly on the plus
side.

One of our country's most productive industries is the software
industry. As a new work, computer programs and — after all, we
know that a computer program is but another form of literary
work. We have known that for some time in this country. But other
countries are just beginning to realize that. Many of these coun-
tries are just now according copyright protection to software. Many
are not protecting software which is in existence before they join
an international copyright treaty like the Berne Convention.

This means that consumers continue to use unauthorized older
versions instead of newer, protected versions. This hurts every U.S.

242

software company. It hurts hardware companies because of reduc-
tion in sales in hardware. It hurts computer Hteracy. It holds back
the market and it costs significantly in lost sales.

And the harm is not just to PC software; mainframe and custom
software is pirated and used in place of newer versions where criti-
cal code is stolen to create derivative software that infringes our
citizens' creations.

With us taking a strong and principled stand here in this coun-
try, we can leverage retroactive protection abroad. I almost entirely
disagree with Mr. Karp on this point. I think the chances of us ob-
taining good retroactive protection is quite strong if we have this
tool behind us. If they fail to do so willingly, we can take them to
the GATT.

As I note in our written statement, the music and book publish-
ing industry is also adversely affected by this lack of protection
abroad. Valuable repertoire from the 1950's and 1960's and later—
to the extent that it is not protected in some countries — pop music
of the 1940's, serious music is all available without permission and
payment in the countries I named. Older editions of textbooks,
great works of fiction, classics and popular works are available in
unauthorized editions in these countries as we speak.

Finally, Mr. Chairman, I want to emphasize that our mernbers
are all reliance parties. All of our companies make use of public do-
main works of one kind or another. All are potentially affected by
this bill, not as so-called gainers abroad, but as parties that must
adjust their practices to the restoration of copyright here.

We have carefully weighed the pros and cons of both these bills,
Mr. Chairman. In our capacity as reliance parties, as well as
gainers abroad, our industries have concluded that they can live
with the result, given provisions like the 1-year sell-off and various
notice provisions and the limitations on remedies. We believe these
bills strike a balance and urge you to work out the differences and
include this legislation in the fast-track bill as soon as you can.

[The prepared statement of Mr. Smith follows:]

243

Testimony

Eric H. Smith

Executive Director and General Counsel

International Intellectual Property Alliance

Joint Hearing Before

The Subcommittee on Intellectual Property
and Judicial Administration
of the Judiciary Committee of the U.S. House of Representatives

and

The Subcommittee on Patents, Copyrights and Trademarks

of the Judiciary Committee of the U.S. Senate

August 12, 1994

244

Summary Statement of

Eric H. Smith

Executive Du^ector

International Intellectual Property Alliance

The U.S. copyright-based industries strongly support the adoption of a copyright
restoration provision m the GATT Implementing Bill.

Restoration of foreign copyrights that fell into the public domain for failure to comply
with U.S. formalities is good public policy and a small pnce to pay for the very
substantial monetary gains to U.S. authors, publishers and producers from havmg
their copyrights "restored" (or protected for the first time) in many countries
throughout the world.

A U.S. failure to fully implement Article 18 of Berne and Articles 9(1) and 14.6 of
TRIPS will (a) encourage our trading partners to continue "legal piracy" of our works,

(b) result in losses of billions of dollars to U.S. authors, publishers and producers and

(c) run the grave risk, we fear, of the U.S. being brought to a GATT dispute
settlement proceeding and losing the case. Such loss may limit Congress's ability to
then "fix" the problem.

Most sectors of the copyright industry currently face major retroactivity problems in
countries like Russia and the CIS states, the Baltics, Poland, Turkey, South Korea,
Taiwan, Saudi Arabia, and the Gulf States, among others.

Our industries in 1993 lost a total of over $2 billion due to piracy in these selected
countries, a not insignificant portion of which is due to failure to "restore" protection
for our copyrights. Cumulatively, since 1989 when the U.S. joined the Berne
Convention, our industries have lost an estimated total of $7.3 billion due to piracy
in these countries, a part of which is due to this lack of protection.

While S. 2368 and H.R. 4894 have differences, both derive from the same structural
and poUcy roots. Basically both bills provide a balance between the need to establish
a "model" for foreign governments to restore copyright protection in U.S. works and
the need to balance domestically the rights of foreign authors and persons who have
rehed on the formerly public domain status of the work. HP A agrees with the Justice
Department's Office of Legal Counsel that this legislation will pass constitutional
muster.

UPA and its 1500 members urge the Committees and the Administration to reconcile
the two bills and incorporate a provision in the GATT Implementing Bill.

245

Messrs. Chairmen and Members of the Committees:

My name is Eric H. Smith. I am Executive Director and General Counsel of the
International Intellectual Property Alliance ("Alliance" or "IIPA"). I am joined by tv-o of
our members who are very significantly affected by the legislation that is the topic of this
hearina Jay Berman is the Chairman and CEO of the Recording Industry Association of
America and Matt Gerson, MPAA Vice President, Congressional Affairs, is here on behalf
of Jack Valenti, the Chairman and CEO of the Motion Picture Association of America.
They will speak on the critical importance of this legislation to their industries. I will
provide some overall background, briefly cover the impact on these two industries and on
the computer software and music and book publishing industry, the other industry sectors
in the IIPA.

The IIPA is an umbrella organization formed in 1984 whose members consist of eight
trade associations, each of which, in turn, represents a significant segment of the copyright
industries in the United States. These associations are:

American Film Marketing Association (AFMA)

Association of American Publishers (AAP),

Business Software Alliance (BSA),

Computer and Business Equipment Manufacturers Association (CBEMA),

Information Technology Association of America (ITAA),

Motion Picture Association of America (MPAA),

National Music Publishers' Association (NMPA) and

Recording Industry Association of America (RIAA).

IIPA represents more than 1500 companies producing, publishing, and distributing
throughout the world computers and computer software, motion picture, television programs
and home videocassettes, music, records, CDs and audiocassettes, textbooks, tradebooks,
reference and professional publications and journals. These companies are the leading edge
of the world's high technology, entertainment and publishing industries. In a 1993 report
commissioned by IIPA, the U.S. total copyright industries accounted for 5.6% of the U.S.
Gross Domestic Product in 1991, employed new workers at three times the rate of the
economy as a whole from 1987-1991 and contributed an estimated $36.2 billion in foreign
revenues in 1991, making these industries among the U.S.' most important export sectors.

246

Adopting a Recapture Provision for Foreign Works in the

Fast Track Legislation is Necessary to Meet the U.S. GATT/Beme

Obligations and is of Critical Importance to U.S. Trade.

At issue in this legislation is the proper implementation by the United States of its
obligations under a provision of the Berne Convention, to which the U.S. adhered in 1989,
and^under two provisions of the so-called TRIPS (Trade-Related Intellectual Property
Rights) Chapter of the GATT Agreement. But the stakes are far greater than the mere
compliance with an admittedly important international obligation. Literally billions of
dollars have been and will be lost every year by U.S. authors, producers and publishers
because of the failure of many of our trading partners to protect U.S. works which were
created prior to the date the U.S. established copynght relations with that country, or, for
other reasons, these works have fallen prematurely out of copyright in that country. In
many instances, full copyright relations have yet to be established, in particular, for sound
recordings. Adoption of this legislation as part of the GATT Implementing Bill is essential
to setting a standard in the GATT for how our trading partners must implement their
obligations to protect these important and valuable copyrights. To do this we must be
willing to revive protection for a number of their works in this country. Later in this
statement, we want to give a few specific examples of how the failure to provide protection
for U.S. works impacts adversely on the U.S. trade and jobs.

Before giving these examples, however, we should take a brief look at the provisions
of these two agreements. Article 18 of the Berne Convention and Articles 9(1) and 14.6 of
the TRIPS Agreement,' in effect require a party to these agreements, say, Country A, to

' Article 18 provides:

(1) This Convention shall apply to all works which, at the moment of its
coming into force, have not yet fallen into the public domain in the country
of origin through the expiry of the term of protection.

(2) If, however, through the expiry of the term of protection which was
previously granted, a work has fallen into the public domain of the country
where protection is claimed, that work shall not be protected anew.

(3) The application of this principle shall be subject to any provisions
contained in special conventions to that effect existing or to be concluded
between countries of the Union. In the absence of such provisions, the
respective countries shall determine, each in so far as it is concerned, the
conditions of application of this principle.

(4) The preceding provisions shall also apply in the case of new accessions
to the Union and to cases in which protection is extended by the application
of Article 7 or by the abandonment of reservations.

247

provide copyright protection to all subject matter encompassed by the agreements that are
stall protected in another party -- Country B (the "country of origin" of the work) -- unless
a particular work has fallen into the public domain by reason of expiration of the term of
protection in Country A. Where the work is not protected in Country A for reasons other
than expiration of the term of protection provided in Country A, then these Articles require
the work to be protected anew -- or recaptured or restored -- in Country A.

In the case of the U.S., some foreign origin works have fallen into the pubUc domain
through failure to follow formalities under our "old" 1909 copyright law -- formalities which
have been outlawed for over a hundred years in other Berne Convention countries, and
outlawed here since 1989, when the U.S. joined Berne. These included the failure to put
a copyright notice on a work when it was first published, or the failure to have filed a
renewal application in the Copyright Office renewing the copyright after the first 28 years.
Because virtually no other country in the world had these requirements, some foreign
copyright owners failed to take these steps and lost their protection in our country. The
Administration's bill introduced by Senator DeConcini as S.2368 and the bill introduced by
Chairman Hughes, H.R.4894, seek to reverse the consequences of these often inadvertent
failures by restoring these works into protection for the remainder of the term of protection
they would have had -- and in a manner that carefully balances the rights of these owners
and of users who relied on their previous public domain status.

But the point of these bills is not just to help these foreign authors and owners, it is
to go as far as we can to ensure that other countries do the same for our works.

The fact is that what the United States does in this area will carry great weight in the
international community. If we interpret Article 18 and the TRIPS provisions to deny
protection or significantly limit its scope, our trading partners - just now considering their
own implementing legislation -- will feel free to simply mirror our views. If the largest
exporter of copyrighted material in the world takes the position that we have no, or only
limited, obligations, the United States will have little credibility in convincing particularly
the new nations with whom we are just starting copyright relations to give us the expansive
protection that we need. We also beheve that this issue will more than likely be brought to

.Article 9(1) of the TRIPS Agreement provides:

1. Members shall comply with Articles 1-21 and the Appendix of the Berne
Convention (1971). * * *

Article 14.6 provides:

6. • * * However, the provisions of Article 18 of the Berne Convention
(1971) shall also apply, mutatis mutandis, to the rights of performers and
producers of phonograms in phonograms.

248

a GATT dispute settlement panel at some point, and we believe the risk is great that, if the
U.S. does not take legislative action implementing recapture under TRIPS (and Berne), it
mav be the first country' to appear before such a panel as a defendant. Many of our trading
partners, particularly m Europe, have made it clear to this country that they consider us in
violation of our obligations under Article 18. The consequences in this event could be
severe and may limit what Congress could do to remedy the problem if we are found in
violation. We fear we would be found in violation unless a bill is passed.

It is critical, moreover, for this action to be taken in the fast-track bill. We urge this
for a number of reasons. First, we believe that recapture is necessary for the U.S. to comply
with its TRIPS obligations. Second, taking this action in the "implementing" legislation will
convey clearly the view of the U.S. that it believes that other countries are similarly required
to adopt the same position in pending legislation or otherwise clarify that foreign pre-
existing works must be fully recaptured and protected. Third, it will be much easier for
most countries to take such action in their "implementing legislation' than in free-standing
legislation; GATT legislation is being understandably viewed as a very high priority in the
countries of greatest concern to us, regular copyright legislation unfortunately normally
occupies a place of very low priority in these countries.

The Trade Impact from Failure to "Recapture" U.S. Works in Foreign Countries

Obtaining protection for U.S. movies, music, sound recordings, software, books and
other copyrighted works on a "retroactive" basis has been one of the key trade objectives of
the last three Administrations. The reason is simple; vast libraries of valuable works remain
unprotected in many countries that have been either late in passing copyright legislation, or
late in entering into copyright relations with the U.S.

Sound Recordings

Most severely impacted is the U.S. recording industry which, as Mr. Berman will
describe in detail, has suffered from uniquely adverse treatment because of the failure of
many countries to recognize sound recordings as "works" protected by the minimum
oblisations in the Berne Convention or the Universal Copyright Convention. This long
history of inadequate protection generally and the absence of protection altogether in many
countries has meant that U.S. sound recordings are subject to "legal piracy" in these
countries. Some selected examples:

249

Russia and the other CIS States and the Baltics (15 Countries): No current
protection, prospective protection only unless these countries agree to fully
implement Article 18." None of these countries are as yet members of GATT.

Poland: No current protection, prospective protection only unless Poland agrees to
fuUy implement Article 14.6 of TRIPS.

Brazil: No protection for pre-1975 repertoire.

Turkey: No current protection, prospective protection only after Geneva adherence
or TRIPS implementation unless and until Turkey agrees to fully implement Article
14.6 of TRIPS.

Saudi Arabia and U.A.E.. other Gulf States: No current protection except in Saudi
and U.A.E., no retrospective protection unless these countries either join the GATT
and fully implement Article 14.6 or, in the case of U.A.E., Kuwait, Bahrain and
Qatar unless and until they fully implement Article 14.6 of TRIPS.

The "legal piracy" permitted under these conditions will cost the U.S. billions of
dollars in the next few years.

Motion Pictures

The U.S. motion picture industry is a major beneficiary of the copyright conventions
and therefore benefits from some retrospective protection in most countries, but there are
very serious problems. Some selected examples:

■ The following language appears in the U.S. -Russia Trade .Agreement which entered
into force (thereby extending MFN) on June 17, 1992: Article VlII(e)(3) states: "Upon the
date when both Parties are members of the Berne Union, the protection of works in
existence prior to that date shall be determined in accordance with Article 18 of the 1971
Paris Act of the Berne Convention." This same provision is contained in Trade Agreements
with all the rest of the CIS members. The Russian government has made clear that it will
provide retroactive protection for "works" only if the U.S. reciprocates with retroactive
protection for Russian works. Retroactive protection for sound recordings is not provided
for expressly in the Agreement and must be further negotiated. Such protection is only
directly provided for in TRIPS which Russia might not join for years.

250

Russia and the CIS States (12 countries): No current protection for pre- 1973 films
and cartoon characters (date of UCC adherence), protection before this date only
possible when Russia adheres to Berne and fully implements Article 18 of the
Convention.

Baltics: No current protection except Estonia, retrospective protection only possible
when Latvia and Lithuania adhere to Berne and all fully implement Article 18.

Poland: Unclear protection for pre- 1984 U.S. films.

South Korea: No protection for pre- 1987 films and cartoon characters.

Saudi Arabia and the U.A.E.: No protection for pre- 1994 films and cartoon
characters.

Taiwan: No protection for pre- 1965 films.

This lack of full retrospective protection in these countries means that the great
Disney and MGM (now Turner) classics and highly valuable cartoon characters like Mickey
Mouse etc. may well be unprotected under copyright laws, costing millions of dollars in
actual and potential revenues annually.

Computer Programs

At first glance, one would not think the software industry would be adversely affected
by the failure to protect older works, given the constant upgrading that characterizes most
software packages. Yet because computer programs have not received protection at all until
very recently in most countries, the status of the industry is not unlike that of the recording
industry. The difference is that most countries consider software protected as a literary
work under the Berne Convention. What is often unclear is whether a particular country
protects pre-1989 computer programs (if it were a member of Berne before that date when
the U.S. adhered to Berne) or computer programs created before a date subsequent to 1989
(if it only recently joined Berne). The answer will depend on whether these countries
interpret Article 18 to require fujl retroactive protection. Moreover, as is true also for
motion pictures, many countnes that are not now Berne members do not protect foreign
computer programs at all.

In countries which do not afford retroactive protection for computer programs or
where such protection is unclear, consumers continue to make use of their older versions
of the "pirate" program rather than pay full price for the legitimate upgrade. This stunts
computer literacy in the country as well as costs the U.S. industry millions in lost sales.
Moreover, some of the most valuable code was created a few years ago and if unprotected
can give rise to piracy as well. Some selected examples:

251

Brazil: Unclear protection for pre- 1989 programs.

Russia and the CIS States (12 countries): Unclear protection for pre- 1994 programs
(no ruling on whether computer programs are protected works under the UCC).

Poland: Unclear protection for pre-1994 programs (date of new law first expressly
protecting programs).

Saudi Arabia and U A.E.: No protection for pre-1994 programs.

Turkey: Unclear protection for pre -1989 programs.

Music and Book Publishing

The music and book publishing industry are fortunately the least adversely affected.
They create traditional Berne and UCC covered works and generally enjoy long terms of
protection. However, there are many countries where protection is inadequate because
older works are in the public domain. For example,

Russia and the CIS States (12 countries): No protection for pre- 1973 music and
books.

South Korea: No protection for pre- 1987 music and books.

Saudi Arabia and U.A.E.: No protection for pre-1994 music and books.

Adversely affected are both serious and pop music created before these dates which
continue to enjoy wide popularity and valuable works of fiction including children's books
etc., and earlier editions of textbooks which continue to be used in place of newer protected
editions.

In just the countries we have named above. IIPA has estimated that the U.S. industry
loses $2.1 billion annuailv. A not insignificant portion of these losses are attributable to
piracy of these pre-existing and as-yet-unprotected works and sound recordings.
Cumulatively, since 1989 when the U.S. joined the Berne Convention, our industries have
lose an estimated total of $7.3 billion due to piracy in these countries, a part of which is due
to this lack of protection.

252

The Bills Provide a Careful Balance Between Foreign Owners
of Restored Copyrights and Domestic Reliance Users

While there are a number of differences between the two bills, the underlying
structures and policies implemented remain virtually the same -- automatic restoration of
works originating in Beme/GATT countries with a limitation on certain remedies for
reliance parties combined with a one year sell-off period. These bills follow the basic
pattern adopted with respect to Mexican films in the NAFTA Agreement. We believe that
these differences can be quickly resolved and a bill crafted in a very short time to meet the
schedule in fast track and urge the Subcommittees to work with the Administration to
accomplish this objective. We funher believe that, if these differences are resolved, the bill
will provide a careful balance between the need, on the one hand, to establish a "model"
provision which other countries could follow in order to secure effective restoration of our
copyrights abroad and the need, on the other hand, to balance the rights of foreign authors
whose works are restored in the U.S. with the domestic users that may have relied on the
public domain status of the work in making investments.

Moreover, we believe this balancing results in the legislation passing constitutional
muster under the Fifth Amendment We are particularly comforted by the findings and
conclusions of the Justice Department's Office of Legal Counsel, an entity with experience,
competence and objectivity that is well known to these Subcommittees.

IIPA and its members look forward to working with both Subcommittees to put the
finishing touches on this very important legislation and we appreciate the opportunity to
appear before you today.

Thank you.

253

Mr. Hughes. Thank you.
Mr. Gerson, welcome.

STATEMENT OF MATT GERSON, VICE PRESIDENT FOR CON-
GRESSIONAL AFFAIRS, MOTION PICTURE ASSOCIATION OF
AMERICA, ON BEHALF OF JACK VALENTI, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, MOTION PICTURE ASSOCIA-
TION OF AMERICA

Mr. Gerson. Chairman Hughes, it is an honor to testify before
you today on behalf of Jack Valenti and the Motion Picture Asso-
ciation. As Congressman Berman referenced earlier, there are easi-
er things in the world than speaking on behalf of Jack Valenti. And
from where you are sitting, it is probably like going to a James
Bond movie expecting Sean Connery and getting one of those other
guys.

My name is G«rson, Matt Gerson. Jack had a longstanding com-
mitment in Los Angeles but asked me to come here to present his
testimony and reiterate just how important retroactivity is to pro-
ducers and distributors of movies, TV shows, and home videos.

We are thankful that you introduced H.R. 4894 and that Chair-
man DeConcini introduced the administration's draft proposal. We
were glad to see that they both include the provision on retro-
activity. We believe the different approaches contained within
those bills are essential to a thorough debate and are confident
that any differences can be rapidly reconciled so that retroactivity
will be included in the GATT implementing legislation.

As you know all too well, GATT was an enormous disappoint-
ment for America's film industry, as it was for many from the copy-
right community. We missed an opportunity to reduce trade bar-
riers and lower trade tensions. But that is the past. It is the future
that counts.

Over 40 percent of our revenue currently come from foreign mar-
kets and our greatest opportunity for growth is overseas. A large
portion of that growth is likely to occur in countries that do not
now recognize our rights in existing works, everything from "Casa-
blanca" to James Bond to "Jurassic Park."

In order for most United States works to gain protection in Rus-
sia and the other former Soviet republics, the former Eastern bloc
countries, South Korea and elsewhere, the United States must ex-
tend copyright protection to older works that were created in those
and other foreign countries. If the United States passes a law that
protects previously produced foreign works, then we would have
every right to expect those countries to pass laws to protect pre-
viously produced American works.

For the MPAA companies, we are talking about some 30,000
movie titles and many more that number in TV shows, episodes,
series, miniseries, and specials. For a company like Disney, that is
everything from "Snow White," a 1937 title, to 'The Lion King,"
and all the other characters contained within those movies.

We are hopeful that the legislation we are discussing will lead
to the day that the U.S. creators will have the right and the legal
backing — the legal backing — to go into those countries and market
their works and the characters contained within those animated
movies.

254

Right now, it is the pirates who are reaping the benefits. If the
U.S. action is met with the anticipated reaction in foreign markets,
the U.S. economy will be the big winner. We are the world's largest
creator and exporter of copyrighted materials. This committee has
heard that a thousand times. The fact is that we have a chance to
sell a lot of older movies, a lot of older TV shows, a lot of older
records, and books. There is great opportunity out there. That is
why we are the obvious loser if the United States does not set the
proper example by providing cop5rright protection to older foreign
works.

Let me just address a question that Congressman Becerra and
Congressman Berman were raising with the previous panel on the
question of derivative works and movies. As Professor Schroeder
said on behalf of the Justice Department, the focus has come down
to h3rpotheticaIs and what happens if, what happens if

Let me tell you what happens in the real world at the movie stu-
dios. Before we make a movie from a foreign public domain work
or a work that is in the public domain in the United States, we
seek out the author, in whatever country he or she may be in, and
clear the worldwide rights. If we are going to invest $20 million or
$30 or $40 million — the average movie today costs $40 million — ^be-
fore we do that, you can bet that we will clear the worldwide
rights. I have looked and can't find that hjrpothetical film that is
going to fall out of protection.

I can assure you that studio heads are not known for their S5rm-
pathy when a copyright lawyer walks in and says, "We just found
a partner for that $40 million movie." It just doesn't work that
way.

Mr. Chairman, members of the committee, we urge you to sup-
port the inclusion of retroactivity in the GAIT implementing legis-
lation. We appreciate the support for that position that was reiter-
ated by Congressman Moorhead, Congressman Becerra, Congress-
man Edwards, Congressman Reed, Congressman Berman, and, of
course, the USTR, which has been absolutely terrific and essential
to our success over the years overseas.

Retroactivity is good copyright policy, good trade policy, and good
economic policy.

Thank you very much for this opportunity.

Mr. Hughes. Thank you, Mr. Gerson.

[The prepared statement of Mr. Valenti follows:]

255

A statement by

Jack Valentl.

President and Chief Executive Officer

Motion Picture Association of America

Before the House and Senate Judiciary Committees

August 12, 1994

GATT Implementing Legislation

and the plea of the U.S. film industry

to insert within that legislation

an approval of "Retroactivity."

To be candid, the results of the final Geneva negotiations on
GATT were not cheerful to the U.S. film /TV industry. The audio
visual world had a grand opportunity to reduce trade tensions and
collapse trade barriers. Unhappily, it didn't happen. But we have
no desire to grumble about what happened in the past. Let's look
ahead. It's the future which counts.

That future is of great moment to this country. The future
beckons to the rapid ascending growth of intellectual property as a
prime American export prize, returning to this country billions of
dollars in Surplus balance of trade. This Committee can give that
rising surplus curve some extra velocity by strengthening the
intellectual property community's ability to hold its own in future
bilateral and multi-lateral negotiations.

256

2 of 3

How to do that? There is a Jaw breaker of a word -
RETROACTIVITY - which suddenly has become mighty valuable.
What 'Retroactivity' means is extending copyright protection to
certain foreign works that are not now protected under U.S. law.
These works are in the "public domain" because of aspects of U.S.
law that existed BEFORE the U.S. Joined the Berne Copyright
Convention in 1989. When this nation Joined Berne, we were
obliged to eliminate certain 'copjright formalities' which sometimes
had the effect of excluding foreign works. But we didn't
re-establish copyright protection for those foreign works which were
now exiled from the rule of law.

Why is this important to you and the nation? Because we
want to do unto others as we would have them do unto us. If the
U.S. 'retroactively' protects works from, for example, Russia, the
former Soviet Republics, the former Eastern Bloc countries, South
Korea, China, then we have every reason to expect those countries
to protect previously produced American creative works. And we
have a library of over 30,000 film titles and many times that
number of TV programs. That's a huge reservoir of valuable films
and TV programs that could go unprotected without an agreement
for Retroactivity.

The musical recording industry has as much at stake as we
do, which means the U.S. economy is the ultimate winner with
Retroactivity in place, and the obvious loser if it isn't.

257

3 of 3

Without Retroactivity, we will have to suffer what can be
called the 'legal piracy" of our works. We will be left with no legal
rebuttals. -That would be a calamity that need not occur.
Retroactivity will open markets now closed to us, and extend our
reach to more viewing opportunities.

Which is why we come to you today with our plea for a more
cheerful future.

258

Mr. Hughes. Mr. Berman, we welcome you today.

STATEMENT OF JASON S. BERMAN, CHAIRMAN AND CHIEF EX-
ECUTIVE OFFICER, RECORDING INDUSTRY ASSOCIATION OF
AMERICA

Mr. Jason Berman. Thank you, Mr. Chairman.

I don't know whether I should be pleased or not by the fact Con-
gressman Berman has recused himself as a result of Mr. Karp's
earlier remarks. Let me say we are not related.

The current intemationsd instruments for the protection of sound
recordings are the Rome Convention of 1961 and the Geneva
Phonograms Convention of 1971. And the standards contained in
both of these conventions are minimal.

The United States is one of only a handful of countries that view
sound recordings as works within the meaning of the Berne Con-
vention. International obligations are thus established by virtue of
Rome and CJeneva. Both Rome and Geneva, in addition to minimal
standards, have limited adherence in comparison to Berne.

The protection of U.S. sound recordings in foreign markets is
highly inadequate, indeed, currently nonexistent in a great many
countries. This legal environment will be entirely transformed by
implementation of TRIPs by all GATT parties.

By virtue of GATT TRIPs, U.S. record companies and performers
will enjoy protection in essentially every country of the world.
Bearing in mind that for most countries, TRIPs will be the sole
basis for determining international legal obligations, it is critical
that we properly and broadly define our TRIPs obligations. One of
the most critical of these obligations is expressed in article 14(b)
of TRIPs, applying the rule of retroactivity in article 18 of the
Berne Convention to the rights of record producers and performers.
This reverses the existing norm established in both Rome and Ge-
neva that there was no obligation to protect preexisting sound re-
cordings.

If, however, the possibility of determining — and I quote, "the con-
ditions of application" in article 18(3) of the primary obligation con-
tained in article 18(1) permits a great deal of latitude, including a
decision not to apply retroactivity at all, then the U.S. victory em-
bodied in article 14(b) will be hollow indeed. It will be much like
the myth of Sisyphus. We will have labored long and hard only to
see the ball come down again.

U.S. economic objectives are best served by securing the narrow-
est possible reading of article 18(3) and, conversely, the broadest
possible interpretation of the essential principle of retroactivity
contained in article 18(1) of Berne.

Let me return to the practical consequences of this proposition
for the U.S. recording industry. By virtue of GATT TRIPs, U.S.
sound recordings will be protected for the first time in as many as
70 countries. Many of these countries are economies in transition
or less developed countries, and are thereby excused under the
GATT transition rules from meeting their substantive obligations
until the year 2000.

Unless we are successful now in introducing a narrow interpreta-
tion of article 18(3) of Berne, we run the risk of leaving unprotected
all U.S. sound recordings produced prior to that date. This is not

259

an issue of whether a few classic recordings will be protected. Rath-
er, it involves a determination of whether recordings created up
until the end of this century will enjoy protection, including those
not yet created.

This is an issue that United States negotiators currently face in
all of their negotiations with the countries of Central and Eastern
Europe, as well as Russia and its former republics, all of whom, up
until now, have not protected sound recordings.

The first step in combating piracy worldwide is to secure a com-
mon understanding of which works are protected. Article 14(b) of
TRIPs, applying article 18 of the Berne Convention to the rights of
record producers and performers, as well as article 18 itself, should
form the basis of this common understanding. If we are successful
in establishing by virtue of our example that article 18 requires all
GATT parties to protect works that are still protected in their
country of origin, we will have created the essential ground rule for
the 21st century.

We should bear in mind that the proposed legislation would re-
store protection only to foreign works not in the public domain in
their country of origin through the expiration of term. The universe
of recaptured works is limited.

The United States has expended 8in enormous amount of effort
in promoting the adoption and enforcement of adequate and effec-
tive intellectual property laws around the world. What we have de-
manded from our trading partners is that they shut down piratical
operations, operations that until the moment of legislation are, like
our own public domain merchants, legal. Their legality has not pre-
vented us from correctly identifying these practices as piratical.

The United States has an obligation to live by the same rules
that we demand elsewhere. Putting pirates out of business in Thai-
land, China or Mexico places far greater political and economic
strains on those countries than does the proposed measure here,
particularly in view of the fact that we are the overwhelming bene-
ficiary of this tradeoff" on a global basis.

There is another, perhaps even more immediate and critical ele-
ment of the existing administration proposal and of the proposal in-
troduced by the chairman for GATT implementation: The establish-
ment of a Federal antibootlegging statute. Article 14(1) of TRIPs
requires countries to provide performers with the ability to prevent
the unauthorized fixation and broadcast of their live performances,
as well as the reproduction of such fixations.

In addition, article 61 requires countries to provide criminal pen-
alties in cases of copyright piracy on a commercial scale.

Mr. Chairman, I have in front of me a series of such bootlegs on
a commercial scale. This is a $1 billion industry worldwide. A
Bruce Springsteen collection, unauthorized, live performances pro-
duced by a CD facility in Italy. The same facility producing
Fleetwood Mac. Going back into history, the Beach Boys. In Hun-
gary, it was Crosby, Stills, Nash, and Young. In Germany, Billy
Joel. In Italy, Stevie Ray Vaughn. This is a different CD plant in
Italy. In Korea, REM. In France, Bonnie Raitt. The Eagles. The
Eagles are on tour. They are back. In France — in that box, I have
left a series of others. This is an enormous commercial undertak-
ing.

260

Mr. Hughes. At least they have good taste.

Mr. Jason Berman. I think it is the good taste in American
music.

Mr. Hughes. That is what I mean.

We have to stop for a few minutes because we have a vote in
progress and we are going to miss it unless we leave right now. So
we are going to recess for about 10 minutes and then we will come
right back.

The subcommittee stands in recess.

[Recess.]

Mr. Hughes. The subcommittee will come to order.

Jay, you were about to tell us about piracy around the world.

Mr. Jason Berman. Then I will continue. The enactment of a
Federal antibootlegging statute that provides criminal penalties for
the unauthorized fixation and transmission of live performzinces, as
well as trafficking in such articles, regardless of where and when
they were fixed, will provide an unambiguous and broad message,
both about how seriously the United States views such activities
and how we interpret the TRIPs provisions in question.

This provision is also essential for U.S. compliance with article
51 of TRIPs, requiring countries to provide measures for Customs'
interception of pirated goods. U.S. Customs, I should note, strongly
supports the establishment of such a right embodied in Federal
law.

And finally, let me point out, Mr. Chairman, that as far as I
know, there is no domestic opposition to this particular measure.
Its embodiment in U.S. law will have the effect of both improving
protection in this country and establishing a clear and unequivocal
basis for the protection of U.S. performers in overseas markets.

Mr. Chairman, members of the committees, I urge your support
of these measures within the frsimework of GATT implementing
legislation. Failure to secure these provisions, ironically, will un-
doubtedly make many of our trading partners extremely happy
since it will amount to a license to continue to pirate our works.

Thank you.

Mr. Hughes. Thank you very much.

[The prepared statement of Mr. Jason Berman follows:]

261

Jason S. Bebman

Chairman

Chief Executive Officer

STATEMENT OF JASON S. HERMAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RECORDING INDUSTRY ASSOCIATION OF AMERICA

on
GATT IMPLEMENTATION

before a

JOINT HEARING OF THE
SENATE SUBCOMMITTEE OF THE JUDICIARY
COMMITTEE ON PATENTS, COPYRIGHTS AND TRADEMARKS

and

HOUSE SUBCOMITTEE OF THE JUDICIARY COMMITTEE
ON INTELLECTUAL PROPERTY AND JUDICIAL ADMINISTRATION

AUGUST 12, 1994

262

SUMMARY OF THE TESTIMONY OF
JASON S. BERMAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RECORDING INDUSTRY ASSOCIATION OF AMERICA

While the GATT/TRIPS Agreement failed to secure some
major objectives of the United States and its copyright
industries — in particular, national treatment and market
access, there are a number of critical provisions embodied in
the agreement that can significantly further US economic goals
by protecting American copyrighted exports. One of these is
an agreement to provide protection for preexisting works that
are still protected in their country of origin, thus
guaranteeing that valid US copyrights will be respected around
the world. The other is an agreement to provide mechanisms for
the prevention of bootlegging of live performances. The
United States now has the opportunity to demonstrate, by
example, the breadth of these commitments.

In regard to the so-called "retroactivity" issue, the
United States must make it clear that the obligation to
protect works still protected in the country of origin admits
of no exceptions. This is not the current state of US law,
and implementation of this measure will restore protection, or
offer protection the first time, to a limited number of
foreign works currently in the public domain. Congress has
already done this in NAFTA implementation, and we proposed
that GATT implementation be accomplished in the same, already
approved , manner .

As you can well imagine, there are vastly more US works
currently unprotected in foreign markets than foreign ones
here, and the economic consequences of taking this action are
dramatically in favor of US industries. This is particularly
true in the case of sound recordings, which are currently
unprotected in as many as 70 countries. Failure to take this
action could result in the inability to achieve protection for
US sound recordings created up until the year 2000 — the date
on which TRIPS obligations become effective for economies in
transition and for less-developed countries.

In terms of the bootleg provisions, the TRIPS Agreement
closes a gaping loophole in the existing international legal
framework under which US performers and record companies have
suffered grave prejudice. TRIPS represents the first
international treaty to which the United States is a party
that secures a performer's ability to prevent bootlegging.
Passage of legislation creating criminal penalties for
bootlegging will give us the effective means of curtailing an
illicit trade currently generating about one billion dollars
annually.

263

I want to thank both Chairmen for inviting me to appear
today to present my views on the critically important issues
raised by GATT implementation. The manner in which the US
implements its TRIPS obligations, and by so doing helps to
define the meaning of the GATT/TRIPS Agreement, is of enormous
commercial significance to US copyright industries generally,
and to the record industry in particular. To properly
describe this significance, permit me to provide some
background information.

The United States is one of only a handful of countries
that view sound recordings as "works" within the meaning of
the Berne Convention, and international obligations in respect
of sound recordings are thus generally established by virtue
of the Rome and Geneva Phonograms Conventions, and now by
GATT/TRIPS — a major advance in terms of the level and extent
of protection. Both Rome and Geneva Phonograms have limited

264

-2-

adherence (45 & 51 respectively, compared to 105 for the Berne
Convention) . The protection of US sound recordings in foreign
markets is thus highly inadequate — indeed currently
nonexistent in a great many countries.

This legal environment will be entirely transformed by
implementation of TRIPS by all GATT parties. By virtue of
GATT/TRIPS, US record companies and performers will enjoy
protection in essentially every country of the world (Note:
The copyright owners of musical compositions have a different
legal status, having been long recognized as "authors" of
"works" under the Berne Convention, and therefore currently
enjoy a high level of de jure protection. The inability of
record companies to fight pi racy, however, also directly and
proportionately negatively affects authors and composers) .
Bearing in mind that for most countries TRIPS will be the sole
basis for determining international legal obligations, it is
critical that we properly and broadly define TRIPS
obligations.

One of the most critical of these obligations is
expressed in Article 14.6, applying the rule of retroactivity
in Article 18 of the Berne Convention to the rights of record
producers and performers. This reverses the existing norm
established in both Rome and Geneva Phonograms, that there was
no obligation to protect preexisting sound recordings. This
represented a major achievement for US negotiators in Geneva
who had sought to end decades long prejudice to the interests
of the US recording industry.

265

-3-

Of course, the measure of practical success that is
achievable now completely hinges on the meaning of Article
18. If the possibility of determining "the conditions of
application" (Article 18.3) of the primary obligation
contained in Article 18.1 permits a great deal of latitude,
including a decision to not apply the principle of
retroactivity at all, then the US victory embodied in Article
14(6) doesn't even rise to the level of that of Pyrrhus. In
fact, it will be more like Sisyphus. US economic objectives
are best served by securing the narrowest possible reading of
Article 18.3, and conversely the broadest possible
interpretation of the essential principle of retroactivity
contained in Article 18.1. It is my hope that we will be
successful in estaiblishing the proposition that there is
little or no subjectivity in interpreting the meaning of
Article 18.

Let me return to the practical consequences of this
proposition. By virtue of GATT/TRIPS, US sound recordings
will be protected for the first time in as many as seventy
countries. Many of these countries are "economies in
transition" or "less-developed countries" that are excused,
under the GATT transition rules, from meeting their
substantive obligations until the year 2000. Unless we are
successful now in introducing a narrow interpretation of
Article 18.3, we run the risk of leaving unprotected all sound
recordings produced prior to that date. This is not an issue

266

-4-
of whether a few "classic" recordings will be protected —
rather it involves a determination of whether recordings
created ug until the end of this century will enjoy
protection, including those not yet created. This is an issue
that US negotiators currently face in all of their
negotiations with countries in Central and Eastern Europe, as
well as in Russia and the former republics, all of whom have
not, up to now, protected sound recordings. It is an issue of
immense economic significance to US record companies, artists
and musicians.

The failure to protect preexisting sound recordings in
most of the world carries with it the potential of introducing
piracy on an unprecedented scale. When cassette tapes were
the pirate's medium of choice, mass exportation of pirate
material from a source country was unlikely given the ease of
entry into the pirate market by local entrepreneurs, and
pirates tended to supply their own domestic markets.
Inadequate levels of protection is one country did not
generally prejudice surrounding markets, although there were
some notable exceptions.

The introduction of the compact disc and other digital
media, in conjunction with improvements in the infrastructure
for the distribution or transmission of recorded music, have
transformed this equation. CD pirates now open shop in the
country offering the lowest level of protection, invest
heavily in production equipment that permits the manufacture
of clones of legitimate product, and engage in export trade.
The quality of these reproductions limits or eliminates the

267

-5-
ability of Custom officials to protect borders, thus yielding
a situation where protection in any country, including our
own, is effectively set at the lowest common denominator in
the world.

This problem will be enormously compounded in the near
future when pirates, rather than manufacturing and
distributing pirate copies, can merely upload signals to a
satellite for distribution or can interface with networks
connected with global information infrastructures and achieve
instantaneous entry into markets around the world. The fact
is that in some sense, the world is becoming a single market
in which piracy can not be limited territorially, and it is
critical that we secure significant harmonization of
protection at the highest level. Then we can attack piracy at
the only point where success is achievable — at the source.
The first step in doing this is to secure a common
understanding of which works are protected.

Article 14.6 applying Article 18 of the Berne Convention
to the rights of record producers and performers, as well as
Article 18 itself, should form the basis of this common
understanding. If we are successful in establishing, by
virtue of example, that Article 18 requires all GATT parties
to protect works that are still protected in their country of
origin, we will have created an essential ground rule for the
21st century. This will permit US creators to both derive
benefits from the works that they have created, and provide a
basis for the continued vitality of some of America's most
productive and competitive industries.

268

-6-

While this measure will certainly have some negative
impact on certain individuals currently exploiting public
domain materials in the United States, and while their plight
is not altogether unsympathetic, it is necessary to recall
that these individuals are engaged in what we have termed
elsewhere, piracy. We should also bear in mind that the
proposed legislation would restore protection only to foreign
works not in the public domain in their country of origin
through the expiry of term, and that the universe of
recaptured works is thus limited. The United States has
expended a great deal of effort in promoting the adoption and
enforcement of adequate and effective intellectual property
laws around the world. What we have demanded from these
governments is that they shut down piratical operations —
operations that until the moment of legislation are, like our
public domain merchants here, legal. Their "legality" has not
prevented us from correctly identifying these practices as
"piracy. "

The United States has an obligation to live by the same
rules that we demand elsewhere. Putting "pirates" out of
business in Thailand, China or Mexico places far greater
political and economic strains on those countries than does
the proposed measure here — particularly given that here the
consequence of taking a somewhat difficult step will over-
whelmingly be to the benefit of US industries.

269

-7-

There is another, perhaps even more immediate and
critical, element of the existing Administration proposal for
GATT implementation — the establishment of a federal
anti-bootlegging statute. Article 14.1 of TRIPS requires
countries to provide performers with the ability to prevent
the unauthorized fixation and broadcast of their live
performances, as well as the reproduction of any such
fixations. Article 61 requires countries to provide criminal
penalties in cases of copyright piracy on a commercial scale.

These provisions plug an existing gaping loophole in the
international legal protection for performers that has
resulted in the denial of protection to US performers in much
of the world — including many of our major trading partners
such as Japan, Germany and Italy. As a consequence of the
absence of this protection, there is a worldwide trade
amounting to billions of dollars per year in bootlegs of
American performers. Not only are performers and record
companies prejudiced economically, but they are denied the
opportunity to exercise artistic and quality control over
productions sold to the public. Given that this trade is
entirely "legal" in these countries, catalogs prominently
feature the availability of such unauthorized fixations.

270

-8-

principle to the rights of performers established in Article
14.1). The enactment of a federal anti-boot legging statute
that provides criminal penalties for the unauthorized fixation
and transmission of live performances, as well as trafficking
in such articles regardless of where and when they were fixed,
will provide an unambiguous and broad message both about how
seriously the United States views such activities, and how we
interpret the TRIPS provisions in question.

This provision is also essential for US compliance with
Article 51 of TRIPS that requires countries to provide
measures for Customs interception of pirated goods. The
absence of a federal anti-bootlegging provision has
effectively prevented Customs from being able to take action
with respect to imported articles containing unauthorized
fixations of live performances. As a consequence. Customs
strongly supports the establishment of such a right embodied
in federal law.

Finally, let me point out that as far as I am aware,
there is no domestic opposition to this measure. Its
embodiment in US law will have the effect of both improving
protection in this country and establishing a clear and
unequivocal basis for the protection of US performers in
overseas markets.

On the basis of the foregoing, I urge your support of
these measures within the framework of GATT implementing

271

-9-

legislation. Failure to secure these provisions, ironically,
will undoubtedly make many of our trading partners extremely
happy since it will amount to a license to continue pirating
our works.

272

Mr. Hughes. Mr. Urbanski, welcome.

STATEMENT OF LARRY URBANSKI, CHAIRMAN OF THE FAIR-
NESS IN COPYRIGHT COALITION, AND PRESIDENT,
MOVIECRAFT, INC.

Mr. Urbanski. I would like to thank the chairman, Mr. Hughes,
for the opportunity to discuss the Berne and GATT Retroactivity
Act of 1994.

My name is Larry Urbanski, chairman of the Fairness in Copy-
right Coalition and president of Moviecraft, Inc., a small growing
company, family-owned. We have an archive with approximately 10
million feet of catalogued motion picture film. We specialize in in-
dustrial, educational, travel, and television shows. The collection
covers 1909 to 1964. Our entire collection has been researched and
found to be in the public domain.

We offer stock footage for commercial, industrial corporate films,
documentaries and any use imaginable for archival images. We are
very much a part of the information highway.

We also have a home video line, with approximately 180 titles at
present. We have supplied tapes to students doing research, muse-
ums, universities and we helped the U.S. Navy acquire copies of
films they previously discarded. Our clients are from the smallest
user to major motion picture companies.

We have produced two series for television syndication from pub-
lic domain footage: "The Wartime Years" and "Hollywood Dreams."

Due to concern over copyright changes occurring in Washington,
I became chairman of the Fairness in Copjnnght Coalition, a group
representing video distributors, stock houses, historians, authors,
and archives. Many of our members participated in the Film Pres-
ervation Study of 1993, a part of the 1992 copyright legislation.

It is interesting to note the recommendations of the Librarian of
Congress, James H. Billington, in "Redefining Film Preservation, a
National Plan." He addresses the issue of orphan films, which are
the films our industry utilizes. Most think of film preservation and
Hollywood films. Public domain orphan films are the largest seg-
ment of film, comprising approximately 75 percent of the films
made. Orphan films include: public domain films, industrial, edu-
cational, actuality footage, advertising, religious, business, docu-
mentaries, animation, and commercials. They are titles like, "Dat-
ing Do's and Don't's," "The Magic Key," which is the story of adver-
tising in 1940, or "France by Motor Car in 1925."

The recommendations of Mr. Billington state, "The larger and
more difficult concern is orphan films, works without clearly de-
fined owners or belonging to commercial interests unable or unwill-
ing to take responsibility for long-term care." It is proposed to "use
Federal preservation copying dollars to preserve these films."

Our industry has been preserving these films at no cost to the
taxpayers, however, these are the films the legislation affects. As
private archives, we preserve these works as do my colleagues, free
of charge to the public in exchange for their usage through public
domain.

Orphan films are important records of our civilization. Federal
preservation copying dollars can be used for other film projects if
the new legislation accommodates our concerns.

273

Moviecraft was incorporated in 1985. We were made aware of the
1992 Copyright Reform Act which automatically renewed works
after 1964. With the help of authors, producers, stock houses, ar-
chives, colleges and historical societies, I chaired a group called the
Film and Image Preservationists Against Automatic Copyright Re-
newal. We brought our concerns to the legislators, but the 1992 leg-
islation was still implemented.

The 1992 legislation was devastating for archives and distribu-
tors. The automatic renewal copyrighted everjd^hing for a second
term after 1964. Orphan films after 1964 were reluctantly removed
from our collections. Since they were abandoned, clearances were
impossible. We couldn't find the owners.

Some companies, because they were bought out by other corpora-
tions, would not release or license any rights on films even though
they held copyright. They simply didn't want an3rthing to do with
these early works. The copyrights were resurrected from the dead,
and the owners didn't care.

This is my first experience with automatic or blanket renewal.
These works should have been allowed to lapse into the public do-
main for freedom of use. The creative community would be benefit-
ing from these works, which is the reason for public domain. Their
usage would enrich our historical culture.

The Berne and GATT Retroactivity Act of 1994 initially works
counterproductive to my industry, as the 1992 legislation did.

Our stock footage division, as well as the 1,500 other stock
houses across the United States, must supply in writing proof the
material offered is in the public domain or we must indemnify.

The NAFTA provision on copyright was workable for us. Al-
though we oppose restoration on constitutional grounds, NAFTA al-
lowed claiming of foreign post- 1978 works only and allowed a win-
dow of 1 year. The key here is once this period is over, those works
not claimed remained in the public domain.

Mr. Hughes. Mr. Urbanski, can you summarize for us the bal-
ance of your testimony?

Mr, Urbanski. Summarize, OK

Twenty percent of our holdings are in foreign works. The 1992
legislation caused us a problem with the automatic renewal. The
1994 legislation again causes us problems with automatic restora-
tion. There has to be basically an end, and I have put together
what are some possible compromises, because I understand these
other important issues of piracy and so on overseas. I can't ques-
tion those. Certainly, they are important.

We think that the amount of foreign works claimed may be
small. This will leave a large amount of abandoned works which
must be allowed to remain in the public domain for the public ben-
efit. And when I am saying small, I am talking about these orphan
films, no one is going to bother with them. The automatic restora-
tion will stop the commercial use so there must be a compromise
answer.

What we need is a more NAFTA-type provision. We would like
the restoration to start in 1978. I know everyone would like — ev-
eryone on this panel would like it to start at 1919. The legislation
should allow for £in end — this is a key — for example, after the 1-

274

year NAFTA window, the material left over remained in the public
domain.

Can we compromise to include a year, for example, 1964? Can we
extend the window for claimants to 3 years or 4 years where this
legislation, and I am just tEilking about from what I have heard
today, where there can be this reciprocity worked out in this 3- or
4-year period, but at least have there be an end where the material
that is left over remains in the public domain for usage from stock
houses.

We are not a small industry. Footage 89, which was done 6 years
ago, there are 1,500 companies in here and we work with the cre-
ative community. We love our work. We feel we are doing impor-
tant work, £ind we would just like to continue that.

I think — oh, and I also have three papers that we put together
for this hearing and I would just like to offer those for the record,
and that was the copjn-ight restoration provision, GATFs agree-
ment, our compliance obligations, paper on reliance parties and our
constitutional concerns on restoration.

Mr. Hughes. Without objection, they will be received for the
record.

Thank you.

[The prepared statement of Mr. Urbanski follows:]

275

TESTIMONY GIVEN ON 8-12-94 TO THE INTELLECTUAL PROPERTY AND
JUDICIAL ADMINISTRATION SUBCOMMITTEE BY:

LARRY URBANSKI. President Moviecraft, Inc.

THE FAIRNESS IN COPYRIGHT COALITION, Chairman

P.O. Box 438

Orland Park, IL 60462

I would like to thank the Chaimian of the Intellectual Property and Judicial
Administration Subcommittee, Mr. Hughes, for the opportunity to discuss the
Bern and GATT Retroactivity Act of 1 994.

My name is Larry Urbanski, Chairman of the Fairness In Copyright Coalition,
and President of Moviecraft, Inc., a growing small company, family owned. We
are an archive with approximately 10 million feet of cataloged motion picture film.
We specialize in industrial, educational, travel, and television shows. The
collection covers 1909 to 1964. Our entire collection has been researched and
found to be in the public domain.

We offer stock footage for commercials, industrial corporate films,
documentaries, and any use imaginable for archival Images. We are very much
a part of the 'Information Highway."

We also have a home video line with approximately 180 titles at present. We
have supplied tapes to students doing research, museums, Universities, and we
helped the United States Navy acquire copies of films they previously discarded.
Our clients are from the smallest user, to major motton picture companies.

We have produced two series for television syndication from public domain
footage, The War Time Years and Hollywood Dreams.

Due to concern over copyright changes occuning in Washington, I became
chaimnan of the Fairness in Copyright Coalition, a group of representing video
distributors, stock houses, historians, authors, and archives.

Many of our members participated in the film preservation study of 1993, a part
of the 1992 copyright legislation. It's Interesting to note the recommendations of
the Librarian of Congress, James H. Billlngton, in "Redefining Film Presentation,
A National Plan. ' He addresses the issue of orphan films, which are the films
our industry utilizes. Most think of film preservation and Hollywood films. Public
domain "orphan films" are the largest segment of films, comprising approximately
75% of films made. Orphan films include public domain films, industrial,
educational, actuality footage, advertising, religious, business, documentaries,
animation and commercials. They are titles like "Dating Do's and Dont's", "The
Magic Key' (The story of Advertising) 1940, Or "France by Motorcar 1925". The

276

recommendations^state "The larger and more difficult concern Is orphan films,
works without clearly defined owners or belonging to commercial interests unable
or unwilling to take responsibility for long term care." It is proposed to "Use
federal preservation copying dollars" to preserve these films.

Our industry has been preserving these works at no cost to the taxpayers.
However, these are the films the legislation affects. As private archives we
preserve these works, as do my colleagues, free of charge to the public in
exchange for their usage through public domain. Orphan films are important
records of our civilization. Federal preservation copying dollars can be used for
other film projects if the new legislation accommodates our concerns.

Moviecratt was Incorporated in 1985. We were made aware of the 1992
Copyright Reform Act, which automatically renewed works aftjar 1 964. With the
help of authors, producers, stock houses, archives, collegesifnisiorical societies,
I chaired a group called The Film and Image Preservationists against Automatic
Copyright Renewal. We brought our concerns to our legislators, but the 1992
legislation was still implemented.

The 1992 Legislation was devastating for archives and distributors. The
automatic renewal copyrighted everything for a second term after 1964. Orphan
films after 1964 were reluctantly removed from our collections. Since they were
abandoned, clearances were Impossible. We couldnl find the owners. Some
companies, because they were bought out by other corporations, would not
release or license any rights on films even though they held copyright. They
simply didn't want anything to do with these eariy works. The copyrights were
"resurrected from the dead", and the owners didn't care.

This is my first experience with automatic or blanket renewal. These works
should have been allowed to lapse into the public domain, for freedom of use.
The creative community would be benefiting from these works, which is the
reason for public domain. Their usage would enrich our historical culture.

The Berne and GATT Retroactivity Act of 1994 initially works counterproductive
to my industry as the 1992 legislation did.

Our stock footage division, as well as the 1500 other stock houses across the
United States, must supply in writing proof the material offered is in the public
domain, or we must indemnify.

The NAFTA provision on copyright was workable for us. Although we oppose
restoration on constitutional grounds, NAFTA allowed claming of foreign post
1978 works only, and allowed a window of one year. Once this period is over,
those wori<s not claimed remained in the public domain.

277

The QATT legislation Is too far reaching. It covers all works back to 1919, a
huge amount of Intellectual property. When GATT is implemented, all of these
works receive automatic protection. The public domain works our industry uses
daily are for the most part abandoned works. There will never be a claimant on
these works. However, through automatic protection, and fear of litigation, the
film maker will avoid the clip usage. As an archive or distributor, we cannot
Indemnify because the legislation creates unknowns. These images should be
fostering new creativity, but the automatic protection has made them
commercially unusable.

Archive's collections has been thinned to include only works up to 1964. The
problems inherent in the 1992 automatic renewal is continued for our industry in
the new legislation.

The Retroactivity Act of 1994 will thin our collections even more. We cannot use
the works, and by definition "orphan films" have no owners. Our studies show of
domestic registered works from 1950 to 1959, 50% of domestic films were not
renewed. This was from choice. In most cases these films no longer had an
owner, or the owner cared so little about the work they didn't care to renew.
If they are legislated into a gray area with no commercial value to us, we, as
businesses, cannot afford to presence them. Culturally important films will be lost.

Moviecraft has approximately 20% holdings In foreign public domain. This Is a
large segment of our footage. If this were taken away, it wouM hurt us. We ask
the legislation recognizes it's impact on orphan films.

Although we believe any restoratton has serious constitutional implications, we
are concerned of movements toward domestic restoration, and this QATT
legislation may be considered a precedent. This would be the final death blow to
our mutti million dollar domestk; industry.

The amount of foreign wort<8 claimed may be small. This will leave a large
amount of abandoned works which MUST be alk>wed to remain in the public
domain for the public benefit. The automatic restoration stops commen^lal use.
There must be a compromise answer.

The solution for our dilemma is a more NAFTA like provision. We would like
restoration to start at 1978. The legislation should allow for an "end." After the
one year NAFTA window the material left over remains in the' publte domain.

Can a compromise answer include a year like 1964 for restoration? Can we
extend the window for claimants to three years, but let the orphan films not
claimed remain in the public domain?

Can a 'grandfather clause' exception be made for derivative works made before
a foreign author claims a work?

278

Please address the issue of abandoned works so they can be used in the United
States without threat of litigation. The loss of the usage of these works will stop
archiving them and make their use commercially impossible for stock footage
houses, a devastating blow to companies employing countless people and the
creative community in the United States.

We have included for the record studies done by the Faimess In Copyright
Coalition:

A. COPYRIGHT RESTORATION PROVISION: GATT (TRIPS) AGREEMENT
OUR COMPLIANCE OBLIGATIONS AND ANALYSIS.

B. RELIANCE PARTIES: EXPECTATIONS OF COUNTRIES BY THE WORLD
INTELLECTUAL PROPERTY ORGANIZATION IN RESTORATION ISSUES.

C. CONSTITUTIONAL CONCERNS IN RESTORATION.

I thank the subcommittee for the opportunity to bring our industry concerns
before you.

279

FAIRNESS IN COPYRIGHT COALITION

Moviecraft, Inc.

Larry Urbanski

Box 438

Orland Park. IL 60462

708-460-9082

Fax: 708-460-9099

MacDonald & Associates
Fred MacDonald
5660 N. Jersey Ave.
Chicago, IL 60659
312 267 9899
Fax: 312 267 7796

Flint Communications
John McDonough
Box 2012
Fargo NC 58107
701 237 4850

Richard Leskosky
University of IL- Champaign
Unit for Cinema Studies
Urbana, IL 61801
217 333 3356
Fax: 217 244 2223

GoodTimes Entertainment

Catherine Ibsen

16 E 40 St

New York, NY 10016

212 9513007

Fax: 212 889 7877

George Eastman House
Jan-Christopher Horak
900 East Ave
Rochester, NY 14607
716 271 3361

Archive Film Productions
Pat Montgomery
530 W 25 St 5th Fl
New York. NY 10001

Stock Footage Connection
Veto Stasiunaitis
7321 W Breen
Niles, IL 60648
708 966 0496

Footage World
David Fishbein
4548 Van Noord Ave.
Studio City CA 91604
818 905 1071
Fax: 818 905 0301

280

P.O. Box 438

Orland Park, IL 60462

708-460-9082 FAX: 708-460-9099 press *

e-12-94

These discussions focus on our compliance with the Berne Convention, notably Article 18 of the
Convention. We wish to state the United States is in compliance with our commitments under
Article 18 of the Berne Convention, and restoration of foreign copyright through GATT is not an
obligation of the United States. The TRIPS agreement refers us to compliance under Article 18 of
the Bema Convention.

Article 18 comprises 4 paragraphs, which must be read and considered in it's entirety to ascertain
the full meaning of the article.

Article 18 states:

1 . This convention shall apply to all works which, at the moment of Its coming Into force, have not

yet fallen into the public domain in the country of origin through the expiry of the term of

protection.

2 If, however, through the expiry of the term of protection which was previously granted, a work

has fallen into the public domain of the country where protection is claimed, that work shall not be

protected anew.

3. The application of this principle shall be subject to any provisions contained in special
conventions to that effect existing or to be concluded between countries of the union. In the
absence of such provisions, the respective countries shall determine, each in so far as it is
concerned, the conditions of application of this principle.

4. The preceding provisions shall also apply In the case of new accessions to the Union and to
cases in which protection is extended by the application of Article 7 or by the abandonment of
reservations.

The article covers a multitude of circumstances, cleariy stating the Berne Convention recognizes
the uniqueness of various national copyright laws. There is no Interpretation in this article that all
member countries of the Berne Convention must fulfill i> specifk: obligation (restoration), for
latitude is afforded because of the complexity and uniqueness of copyright laws in various
countries.

The third paragraph of the article makes a general proposition. It is used by the United States to
presently be in compliance with the Berne Convention. This section of Article 18 reaffirms the
article's recognition to accommodate our copyright law, and the Constitutional copyright clause
interpretation that "limited term' in US copyright law states that a public domain work cannot be
re-claimed.

Prior to joining the Berne Convention our copyright law was permitted formalities. The third
paragraph reaffirms an allowance for these differences In national copyright law vs. international
copyright law and it accomodates them. We do not intend to Imply US copyright law was or is
devoted to formalities, but our copyright law is committed to the notion of publk: domain.

281

Copyright in the United States is primariiy to benefit the public interest. Through "limited term"
public domain is supported through our Constitutional copyright clause. The third paragraph of
Article 18 supports this fact of difference. We have no obligation under this article to revive public
domain works for foreign authors that have fallen into public domain in the United States prior to
our joining Berne. We are already in compliance v/Hh this article.

The article accomodates international copyright differences. The removal of public domain works
within our country (restoration) would be counterproductive to United States copyright laws, and
would raise inescapable ConstKutional Issues. It should be noted here that United States
copyright law is seen as a precept for copyright refomn internationally.

In November, 1 987 six days of hearings were held to access our joining Berne and our
compliance with Berne. Recognized experts in international copyright law met with US committee
members in Geneva at the World Intellectual Property Organization. "Bringing to bear their diverse
experiences on the question of US adherence to Berne, the consensus of the (International)
consultants was that the US should and can adhere to Berne without making major changes to
US law."

The congressional record also states: "There is a potential danger In establishing International
legal standards through trade agreements and GATT negotiations whksh, however desirable to
particular private interests, are higher than those of our domestic law. Our trade negotiators
obviously do not have the power to legislate. Only congress can pass or amend old laws."

Further reaffirmation of the United States' compliance with arttele 18 is found in the congressional
record. In 1 988 we Joined the Berne Convention. We were considered in compliance in order to
join.

Article 18 recognizes the uniqueness of US copyright law. The philosophy of the legislation to join
Berne found an "overwhelming consensus" on two objectives:

• ...'to utilize a minimalist approach, amending the copyright act only where there is a clear
conflict with the express provisions of the Berne convention (Paris Act of 1971);

• and further, to amend only insofar as is necessary to resolve the conflict in a manner
compatible with the public interest, respecting the pre-existing balance of rights and limitations
In the Copyright act as a whole. ° (Italics added.)

It was also stated: ...the approach used in all sections of the bill. Including the findings and
declarations, is the same: to modify American law minimally to place it In compliance with the
provisions of the Berne Convention while respecting the constitutional provisions that apply
to all such legislative endeavors."

The "minimalist" approach cannot be interpreted as an approach where we do the "least" of our
international obligations for Beme, but a reaffimiation that we are in compliance with Beme and
article 18 while upholding the integrity of United States copyright law.

Owners of copyright properties would contend more corporate profits may be achieved by reviving
copyrights for foreign authors. We submit this is not the purpose of copyright change. We must
uphold constitutionally the three policies of United States copyright; 1) the promotion of learning,
2) the presetvation of the public domain, and 3) the protection of the author in any legislation. The
constitutional purpose of copyright is to facilitate the flow of ideas in the interest of learning.

In addition, restoration has negative domestic Implications. New authors, documentarians,
historians, educators, film makers, stock footage suppliers, video manufacturers, and an endless
"user" networi< utilizes public domain material to create new works. The public donwln Is part of
our cultural heritage. The United States is a leader In the creation of copyrighted works. All of
these new works rely on material in the public domain. Domestically, our creative community will

282

suffer both Intellectually and monetarily with constriction of the public domain through foreign
reetoration.

Our coalition is aware there is both national and International pressure for restoration.

We feel the following Issues should be Implemented in the legislation.

1 . The restoration legislation should include works published after 1978, as the NAFTA treaty did.
This would cause a smaller impact on those United States users relying on the public domain.
We feel restoration of these years would drastically decrease the possibility of a Constitutional
challenge. There should be no blanket renewal, and after the terni or "window" for claiming a
foreign work, the works not claimed during this period must remain in the public domain as
abandoned works.

2. Foreign works that were registered in the United States and were not renewed should not be
re-claimed. There should be a narrow line on defining works to be re-claimed. Claims should be
limited to foreign works published without notice.

3. Newsreels, actuality footage (non-fiction) should be exempt from restoration.

4. Pre-existing derivative worths should be exempt from restoration.

In conclusion, restoration of foreign copyright Is not appropriate or necessary through GATT
legislation. If restoration is implemented due to domestk: concerns, the above points must be
considered in the legislation.

The GATT legislation should not be complksated by court challenges on constitutional grounds. If
ALL domestic effects are addressed, including public domain usage by reliance parties to their
satisfaction, a challenge will be unlikely.

Our clear compliance with Article 18 presen/es the integrity of US Copyright law.

Larry Urbanski

Chairman

Fairness In Copyright Coalition

283

P.O. Box 438

Ortand Park, IL 60462

708-460-9082 FAX: 708-460-9099 press *

8-12-94

RE- RELIANCE PARTIES: EXPECTATIONS OF COUNTRIES BY THE WORLD
INTELLECTUAL PROPERTY ORGANIZATION IN RESTORATION ISSUES.

1 . Article 18 allows for iesB than "full" restoration because "...respective countries shall
determine, each In so far as It Is concerned, the conditions of the application of this
principle."

2. There is a large domestic Industry that relies on all public domain works, including
foreign public domain works. Approximately 1500 film archives are listed in the
publication "Footage 89-91" who supply moving images for US. and international
Commerce. They have 1 to 20 employees, they supply the creative community, the
finished films go to television and home video. They use distributors, TV stations,
advertisers, and support magazines to advertise their wares. Of the approximately 1500
home video distributors, public domain is used and duplicated extensively offering better
value to consumers and employing huge numbers in all aspects of home video
distribution. We have come to rely on these foreign public domain works through which
our copyright laws fostered large investments in restoration, promotion, time, and
money. "Full" restoration will also effect publishers and other users of public domain. It
will cause a nightmare of litigation through the claiming of old screenplays, music, and
other elements of public domain works.

3. The Guide to the Berne Convention published by the World Intellectual Property
Organization states what is expected from a member country that joins Berne. This
guide clearly recognizes the "reliance" that occurs on public domain within a newly
joining member. If we restore foreign works back to 1919, there are works that have
been in the public domain for many decades. There is extensive reliance on these
public domain works In the United States as noted in reason #2. The World Intellectual
Property Organization does not expect restoration in these cases.

If the guide for the treaty by the World Intellectual Property Organization supports this
premise, must the Implementation legislation restore back to 1919? This is not required
by the treaty if reliance parties are adversely affected. With these reasons put forth, a
preferred restoration date would be 1978. Possibly a 1964 compromise for restoration
would be workable, to avoid a huge domestic impact In commerce and jobs.

There cannot be any form of "automatic restoration." After a window period the
material not claimed by foreign authors must be allowed to remain in the public domain
to accommodate abandoned orphan films and their usage in this country through public
domain. Automatic restoration will unnecessarily damage reliance parties in this country
both economically, culturally, and creatively.

A copy of the Guide to the Berne Convention for the Protection of Literary and Artistic
Works is attached.

Larry Urbanski

The Fairness in Copyright Coalition

284

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P.O. Box 438

Orland Park, IL 60462

708-460-9082 FAX: 708-460-9099 press *

CONSTITUTIONAL CONCERNS IN RESTORATION.

8-12-94

Copyright law in the United States Is based in our constitution, unlike copyright
law in foreign countries. Article 1 , section 8 states: The Congress shall have
power... to Promote the Progress of Science and useful Arts, by securing for
limited Times to Authors and Inventors the exclusive Right to their respective
Writings and Discoveries.

This language manifests three policies for copyright: the promotion of learning
(because the language so states), the preservation of the public domain
(because after a limited time all works go Into the public domain), and the
protection of the author (because to achieve the larger goals the author is given
an exclusive right).

Constitutionally, works CANNOT be taken from the Public Domain and given
back to an entity wishing to reclaim a copyright. It Is against the first two policies
of copyright.

The 5th Amendment of the constitution prohibits the uncompensated taking of
property belonging to the public. Here, the property is the public domain. There
cannot be Just compensation for restoring public domain works. The public
domain offers the building blocks and the raw material for our new authors to
create works and derivative works. Removing public domain works from the
domestic market causes a constriction in the public domain, and will hamper new
creative artists, authors, distributors, writers of textbooks, archives, educators,
and film makers for generations to come. Businesses, distributors, and the
creative community rely on public domain to create new works and jobs, both
nationally and internationally. Public Domain usage Is unique in the United
States, and is part of our historical and cultural heritage. A loss of public domain
affects the United States and It's reliance parties adversely, to say the least.

288

Owners of copyright properties who wish retroactivity today erased 14 years of
public domain with the automatic renewal clause in the 1992 copyright act. In the
1994 legislation automatic protection will cause more constriction of the valuable
public domain in the United States that fosters creativity in this country, and it will
constrict the public domain industry in the United States. Past legislation, and the
1994 legislation, have serious implications against the public good and our
industry. These problems can be addressed for reliance parties by having a
more NAFTA type legislation, without an automatic protection clause.

The Berne Convention Article 18 refers to "formalities" causing foreign works to
fall into the public domain. American owners of copyright properties now wish to
use this section to say public domain foreign worlds should be re-copyrighted
through retroactivity. This is a clear violation of the constitution.

We question the issue of "formalities." The insertion of a copyright notice, or
registering a work with the Library of Congress, was law passed by Congress
through their power granted by constitutional law. Our obligations with Berne
started when we Joined Berne, in 1988. The issue of fonnalities is addressed in
our 1978 copyright act. Prior to 1978, the law should stand as the law of the
United States and restoration should be avoided. Reliance parties in the United
States must be considered.

We must look at the domestic implications of any changes. The Reliance Clause
as indicated in the WIPO Guide to the Berne Convention is a basis for
constitutional challenge. The public, according to our US copyright law, should
be of prime concem in new copyright legislation. There would be little opposition
from reliance parties if changes were from present dates forward, but the drive
for protection of existing copyright properties has become penurious, at the
expense of the public good.

The owners of copyright properties should not ask to "sacrifice" public domain in
the United States if this "offering" may possto/y secure retroactivity in other
countries for US wor1<s, possibly increase coverage or monetary retums for their
properties in some foreign countries, or possibly allow some money taxed in
foreign countries as "levys" to trickle back to US copyright owners. In essence,
US Copyright owners are willing to trade domestic Industry and creativity In the
public domain martlet (which is not theirs) for possible profits in f/ie/r pockets
overseas at the public's expense. Copyright owners and reliance parties must
not be at opposite sides, but must work together to meet a common goal.

289

The Berne implementation act of 1989 is the catalyst for this action, even though
there IS NOT an obligation by the United States to retroactively restore public
domain foreign works. As reliance parlies, our legislators have the latitude to
make sure we are accommodated in this legislation.

It would be embarrassing situation internationally for our nation if legislation were
Implemented that would later be held unconstitutional in the Supreme Court.
Recent court cases like "Stewart v. Abend 1 990" and others have supported the
public domain. By accommodating reliance parties to their satisfaction this
legislation will not be at risk.

A more NAFTA type legislation will achieve this compromise, allowing material to
remain in the public domain after claims for restoration are made.

Larry Urbanski

Chairman

290

Mr. Hughes. Mr. Smith, you indicate that you are particularly
comforted in your statement by the Office of Legal Counsel's state-
ment on the fifth amendment. I assume you heard the questions
to Mr. Schroeder and the criticism of that opinion by Professor
Volokh, who testified previously. I know you are not a constitu-
tional law expert, so I am not going to ask you to defend that opin-
ion, but let me raise with you a concern I have.

If you accept Professor Volokh's position that an unconstitutional
act will put the U.S. Treasury and not your members on the hook
for compensation to reliance parties, don't you think we should err
on the side of caution?

If you look at other common law countries, such as the United
Kingdom, they have established a system under which copyright
owners, not the Grovemment, has to buy out reliance parties. They
have an arbitration process that seems to be a workable process.
Why should the U.S. Treasury have to pay millions of dollars to a
motion picture company that can't market its movie because it used
a public domain short story that is now under copyright?

Mr. Smith. Well, you are right, Mr. Chairman, I am not a con-
stitutional lawyer, but let me see if I can say a few things in re-
sponse to that question.

First of all, motion picture producers who base their films on a
public domain work in the United States know full well or should
know that these works are protected everywhere else in the world.
So to the extent they have any interest in marketing their work
abroad, they are going to be clearing worldwide rights, as Mr.
Gerson said.

There could be a very few films based on a public domain work,
either by negligence or otherwise, which were used as the basis of
a film, and I think in those cases, the bill tries to deal with that
by limiting remedies. And at the end of the day, at least what I
have heard, is that the remedy that a judge would give in a situa-
tion where a film owner was sued by an author of an underlying
work that was restored who was unwilling to take a deal with the
filmmaker for royalties — ^because that is how these things are going
to be resolved — the owner of the derivative work and the restored
author, they are going to cut a deal for royalties.

But assuming that doesn't happen, it would seem to me that the
remedy that a court would give in that instance where perhaps the
1-year period would not be viewed as amortizing the investment in
that film, I think would be to extend the amortization period in
that particular case, and I don't think it would involve the Treas-
ury having to pay at all. But again, I am not an expert.

Mr. Hughes. I don't know how the court could do that because,
frankly, it would be granted 1 year. It would seem the court would
be limited to that. But see — explain to me the public policy reasons
why the Government should pay for it.

Mr. Smith. Well, I think, first of all, we don't agree that this
would be a taking, even assuming we are wrong.

Mr. Hughes. Well, there is a legitimate argument about that. I
know I — it may very well be that Professor Volokh is right. He
might be right, because it does raise some serious constitutional
questions. Shouldn't we err on the side of caution?

291

Mr. Smith. Mr. Chairman, at this point, we feel that the balance
of rights and responsibilities in your bill and in the administra-
tion's bill are adequate, backed up by the OLC's opinion. And I
think that if they are wrong, if all these people are wrong, I still
think that the remedy in that very, very rare case, assuming there
were to be a work that were to come along that would fit this,
where a court would hold there was a taking, which I don't think
it would, the remedy would be to extend the period to recoup in-
vestment.

Mr. Hughes. Jay, you make a very compelling case about the
need to protect U.S. sound recordings overseas. You also state that
if we fail to extend retroactivity, U.S. sound recordings may not be
protected by the year 2000. But isn't that true anyway since devel-
oping companies have a grace period until that day, including the
obligation to comply with article 14.6 of TRIPs?

Mr. Jason Berman. It is true that the other countries will not
have to meet their substantive obligations. On the other hand, it
is still true that under U.S. trade law, the United States can deter-
mine that a country does not meet the test of adequate and effec-
tive protection simply by virtue of GATT. So there is no sense in
tying our hands even further.

I think we tied our hands somewhat as a result of the net effect
of Greneva. I think we have to find a way to redeem some of those
tools that are made available to us, and I want to take that, what
you just said, and go back to something that Irwin Karp said ear-
lier.

I don't know how many negotiations he has been involved in with
foreign countries recently in regard to issues involving copyright
protection, but I do think this is — this is a question of leverage, but
it is even a question that goes beyond leverage.

For example, in the discussions between the United States and
Russia over the applicability of protection to United States works,
the Russians simply said to the United States negotiators, and I
might point out that the United States negotiators included the
Copyright Office, that they will interpret their obligations on retro-
activity in exactly the same manner that the United States inter-
prets its obligations. So what we are doing here, I believe, is estab-
lishing by virtue of what we do the ground rule for retroactivity.
It goes beyond the question of trying to give our trade negotiators
some leverage.

Mr. Hughes. I don't have any doubt about that. I don't think
there is — there shouldn't be much debate about that being used as
the criteria, not just the former Russia and other countries in that
part of the world, but probably throughout the world, they will use
that as a benchmark.

You also mention bootlegging.

Mr. Jason Berman. Yes, sir.

Mr. Hughes. And I am very sympathetic to putting in a provi-
sion on bootlegging. But I am told on the issue of whether consent
may be given by any performer or only be a feature performer, if
it is any performer, as in the administration's draft, protection can
be easily lost if a minor performer grants permission to tape. So
that is problematic.

292

On the other hand, if you limit consent to feature performers,
you probably need to provide a definition of feature performer.

Mr. Jason Berman. Mr. Chairman, to my knowledge, the term
of art "featured performer" made its debut appearance in the
DART legislation. Quite frankly, I can't recall if it was actually de-
fined in DART, but I think it is something we would be willing to
explore.

Mr. Hughes. Well, that was a drafting paradox. In any event,
you do agree that we need to look at that question?

Mr. Jason Berman. Yes, I do.

Mr. Hughes. All right.

Mr. Urbanski, I appreciate why you favor the 1-year filing re-
quirement found in NAFTA, section 104(a), but the TRIPs section
104(a), 2-year filing with the Copyright Office, is not that much
more given the vastly large amount of material recaptured and re-
garding the availability to file action of notice on a reliance party
any time during the term of the restored copyright.

Why doesn't this adequately protect you? After all, you are free
to exploit the public domain files until you get a notice and then
for 1 year thereafter. Why isn't that adequate?

Mr. Urbanski. What we find inadequate is the automatic res-
toration at the beginning. In other words, instead of working like
NAFTA where at the end of a particular period and whatever was
not claimed remains in the public domain of the United States, the
bill states that when GATT goes — is implemented, the registra-
tion— it is — all of the works are automatically copyrighted. They
are sort of waiting for a claimant to claim them.

The stock footage industry, archives material, keeps film on the
shelf and waits for someone who can use this footage within a
work. If there is that open-ended situation where they were auto-
matically restored, which is initially what this legislation does, we
would either have to indemnify, which I could not afford to do, or
the filmmaker, for fear of having someone contact him and remove
it from the film, would not use the footage. I mean, this is his
work, he really does not want any legal problems later up the road.

Mr. Hughes. Matt, I only have one question.

Do you disagree with Mr. Berman's concern which he expressed
about the featured artists that we need to define?

Mr. Gerson. No. We refer to that as the "mirror problem." I
think Ira Shapiro quoted Eric on that, and that is our position as
well.

Mr. Hughes. Thank you very much.

This panel has been very helpful. Your full statements, like the
previous panels, were very, very good. We appreciate your assist-
ance in what is a very, very important subject to this country, and
we thank you. We look forward to working with you.

We are going to recess for another 10 minutes. That is a vote in
progress. It is my intent to finish up this before we recess because
I know some have travel plans. I know there is a 4 o'clock flight
by one of the witnesses. We will take them next and get them back
to California, or wherever and we are going to finish.

I ask the final panel, prepare to summarize your statements, like
I have requested throughout these proceedings. The subcommittee
stands in recess.

293

[Recess.]

Mr. Hughes. The subcommittee will come to order.

I apologize for the delays and the interruptions, but most of you
know that is unfortunately a part of the routine around here.

Our final panel consists of Gerry Mossinghoff, who is the current
president of the Pharmaceutical Research and Manufacturers of
America, formerly the Pharmaceutical Manufacturers Association,
which represents over 100 research-based pharmaceutical compa-
nies. He has appeared before this committee on many, many occa-
sions. He is a former Assistant Secretary of Commerce and Com-
missioner of Patents and Trademarks and also served as the U.S.
Ambassador to the Diplomat Conference on the Revision of the
Paris Convention and chairman of the General Assembly on the
United Nations World Intellectual Property Organization. The pub-
lic career of Mr. Mossinghoff also includes service as a Deputy Gen-
eral Counsel and Director of the Congressional Liaison Office for
NASA. He is testifying today on behalf of the Pharmaceutical Re-
search and Manufacturers of America.

Our second panelist is Lita Nelsen who is the director of the
Technology Licensing Office of the Massachusetts Institute of Tech-
nology and has held that position, I believe, since 1986. In 1964,
Ms. Nelsen graduated with a bachelor of science degree in chemical
engineering, and in 1966 earned her master of science in chemical
engineering, both from MIT.

In 1979, she earned a masters of science degree in management
from MIT. Ms. Nelsen has extensive experience in industry, pri-
marily in the fields of biotechnology, medical devices, and memory
separation. She served on the panels dealing with biotechnology
commercialization and university technology with the Office of
Technology Assessment, National Academy of Sciences. In 1992 she
served as the president of the Association of University Technology
Managers.

Our next panelist is Kenneth Addison, Jr., who is an independ-
ent inventor who is appearing on behalf of the United Inventors
Association of the United States. The association represents inde-
pendent inventors all over this country.

Mr. Addison has an extensive engineering career living and
working all over the world. He has worked for the U.S. Corps of
Engineers, U.S. Department of Defense, in addition to private in-
dustry, and as an independent businessman.

He is the owner of several patents and has developed inventive
solutions for highway safety problems and assisted systems for the
physically disadvantaged. Mr. Addison is the president of the Okla-
homa Inventors Congress and the editor of the Inventors Monthly
Newsletter.

Our final panelist is Robert Muir, who is a former chairman of
the Intellectual Property Subcommittee of the National Association
of Manufacturers, and is appearing today on the association's be-
half. NAM represents more than 12,000 companies with over 8,000
having less than 500 employees. Mr. Muir has recently been ap-
pointed the general patent counsel for Caterpillar Corp., and has
worked with the company as a patent attorney since 1974. Prior to
that, he worked for a private firm.

294

All of our panelists have distinguished credentials. We are just
delighted to have you with us. As you have heard me say on nu-
merous occasions previously, we have read your statements and
they will all be made a part of the record in full, and we hope you
can summarize.

Let's begin with you, Gerry, welcome. Nice to see you again.

STATEMENT OF GERALD J. MOSSINGHOFF, PRESIDENT, PHAR-
MACEUTICAL RESEARCH AND MANUFACTURERS OF AMER-
ICA

Mr. MOSSINGHOFF. Thank you, Mr. Chairman. I am very pleased
to be here before this joint hearing. I will be very brief.

As you well know, the patent system is absolutely indispensable
to our industry. It costs almost $400 million to bring a new drug
to market, takes 10 to 12 years, and yet that drug can be copied
by an infringer or by the generic industry at a small fraction of
that cost.

We are very pleased with the substance of the TRIPs provisions.
We are less pleased with the long transition period, the 10 years
for developing countries, but we believe the administration is com-
mitted to, during that time, pursue bilateral, multilateral efforts to
take care of the lack of patent protection during the 10-year transi-
tion period.

As I point out in my statement, we would be — we do support the
20-years-from-filing provision that is recommended by the adminis-
tration, but we believe very strongly that it ought to also include
a recompense for time lost because of successful appeals that might
have to be filed on the theory that, after all, if a person appeals
and wins, obviously that person was not unduly delaying. It was
the fault of the examiner below or the court below because of that
appeal.

We also believe, as I point out in my statement, there are impor-
tant procedural safeguards that should be watched by the Patent
Office, including a sufficient number of skilled examiners watching
to make sure that appeals and interferences do not begin to eat
into the time. But with those assurances from the administration,
which we think they are willing to give us, we do support the 20-
year time of filing.

Mr. Chairman, that concludes the summary of my prepared
statement in the interest of time. You missed it, Mr. Chairman. I
summarized my prepared statement, and I would be pleased to an-
swer any questions.

Mr. Hughes. Gerry, I read your statement last night. It is an ex-
cellent statement, and I understand the importance of GATT mov-
ing forward, and I appreciate it.

Thank you very much.

[The prepared statement of Mr. Mossinghoff follows:]

295

Statement

mm\

GERALD J. MOSSINGHOFF

PRESIDENT

PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA

BEFORE THE

JOINT HEARING OF THE
SUBCOMMITTEE ON INTELLECTUAL PROPERTY AND JUDICIAL ADMINISTRATION

COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF REPRESENTATIVES

AND

SUBCOMMITTEE ON PATENTS, COPYRIGHTS AND TRADEMARKS
COMMITTEE ON THE JUDICLARY

U.S. SENATE

AUGUST 12, 1994

Mr. Chairmen and Members of the Subcommittees:

I am Gerald J. Mossinghoff, President of the Pharmaceutical Research and
Manufacturers of America. PhRMA represents more than 100 research-based companies -
including more than 40 of the country's leading biotechnology companies - that research,
develop and produce most of the prescription medicines used in the United States and a
substantial portion of those used abroad. I appreciate the opportunity to appear today at
this important hearing on the inteUeaual property applicability of GATT Uruguay Round
trade agreements and Congressional implementing legislation.

Our companies have worked closely with the U.S. Government negotiators
and the Congress over the past seven years since the Uruguay Round began in 1986.
During that period, we identified two key areas in which the research-based pharmaceutical
industry has a particular and strong interest. These are the enhanced standards for
intellectual property protection - including pharmaceutical patents — in TRIPs, and the
elimination of import duties on pharmaceuticals in the so-called "zero-for-zero" tariff
agreement.

65-525 4C8

Pharmaceutical Research and Manufacturers of America

1 100 Fifteenth Street. NW , Washington, D C 20005 (202) 835-3400

296

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In the past few weeks, we have also worked closely with a number of U.S.
Government officials regarding changes to the U.S. patent term - specifically changing
from a term of 17 years from patent grant to 20 years from patent application.

PhRMA commends the U.S. Government negotiators, especially Ambassador
Mickey Kantor and his staff at the Office of the U.S. Trade Representative, for their efforts
to bring the Uruguay Round to conclusion after seven years of difficult negotiations.
PhRMA also appreciates the decade-long bipartisan support, in both the Congress and the
Executive Branch, in helping to ensure worldwide respea for intelleaual property,
including patents.

PhRMA supports speedy U.S. implementation of the GATT Uruguay Round
agreement on the understanding that the United States will vigorously pursue other efforts
to improve intellectual property protection in patent-infringing countries during the
unduly long and discriminatory implementation period for pharmaceutical patent
proteaion contained in the TRIPs text.

Mr. Chairmen, you and the members of both these Subcommittees have been
strong leaders in the battle against intelleaual property piracy, and we look forward to
working closely with you during the next several weeks as the Congress and the
Administration finalize and hopefully pass the legislation to implement the results of the
Uruguay Round.

THE IMPORTANCE OF TNTFI I FCTUAL PROPERTY PROTECTION

Before turning to the specifics of our analysis of the Uruguay Round
agreement, I would like to review briefly the reasons why strong and effective intellectual
property protection is vital to the research-based pharmaceutical industry. This
background is key to an appreciation of why the 10-year delay in implementation and lack
of pipeline protection in TRIPs will have a negative impact on the research-based
pharmaceutical industry.

PhRMA member companies have an extraordinary commitment to research
and development. According to the Office of Technology Assessment, it now costs an
average of $359 million dollars (in 1990 dollars) and takes 10 to 12 years to bring one new
pharmaceutical to the market. Only one in 5,000 compounds tested in the laboratory is
ultimately approved for human use.

Unlike many other U.S. industries, the research-based pharmaceutical
industry continues to increase its investment in research and development. The industry
has doubled its R&D expenditures every five years since 1970 and, for several years, has
been spending substantially more than the entire Federal Government spends on all
biomedical research.

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This year, the industry will spend an estimated $13.8 billion on R&D, up
from $12.6 billion in 1993. The ratio of R&D spending to sales will be about 18.8 percent
in 1994. This is more than four times the average rate for all U.S. industries engaged in
R&D. It is also true, however, that the rate of increase in R&D spending is dropping as a
number of healthcare cost containment issues are directly affeaing the industry. Certainly,
continued patent piracy by major countries will discourage greater R&D investment.

The benefits of this R&D are clear. The U.S. industry is the world leader in
developing new medicines. We are responsible for about one-half of all new patented drugs
that have reached the global market since 1970. Private industry was the source of more
than 92 percent of the new chemical entities approved in the U.S. during 1981-1990. And
of the 100 most prescribed patented drugs in the United States in 1992, 99 percent were
patented by private industry.

The U.S. pharmaceutical industry consistently registers trade surpluses year
after year - one of the few high technology-manufacturing industries that does so.

Just as medicines have conquered diseases of the past, including tuberculosis,
polio, syphilis and diphtheria, the industry's new therapies will succeed in combatting the
diseases of the present if the incentives for pharmaceutical innovation, including
elimination of global patent piracy, are preserved.

Pharmaceutical breakthroughs, including those from biotechnology, provide
the best hope that new cures and treatments will be developed. The rise of biotechnology
follows earlier scientific advances that also led to better understanding of disease and
ultimately more effeaive medicines. Products now in the pipeline could provide more
cures and better controls for many of today's most intraaable and costly diseases.

For example, the industry has almost 300 medicines in human clinical trials
or awaiting approval at the FDA for just eight diseases that afflia older Americans. These
eight diseases alone - osteoporosis, diabetes, stroke, depression, arthritis, Alzheimer's,
cancer and cardiovascular disease - cost the United States more than $500 billion each year.

It is a paradox of the industry that while research into new medicines is so
costly, many medicines can be copied at a small fraction of their development cost. We
are, therefore, understandably concerned about the 10-years of delay granted to developing
countries before they must implement TRIPs and the lack of pipeline protertion. Taken
together, these mean that the GATT will not yield adequate and effective proteaion of
pharmaceutical patents in many countries for more than a decade.

According to the International Trade Conmiission, patent piracy by
developing countries costs the international pharmaceutical industry as much as $5 billion
annually. But patent piracy not only affects the ability of the industry to support the
costly innovation necessary to discover new medicines, there is compelling evidence that

298

piracy also endangers public health in developing countries. In January 1992, the British
journal Nature reponed that much of the trade in counterfeit drugs - which is reaching
epidemic proportions in places such as Brazil and Nigeria - originates "from developing
countries that do not recognize the patents owned by multinational drug companies." In
one recent case, reports Nature, more than 100 Nigerian children aged under six years old
died after being given acetaminophen containing an industrial solvent. Similar cases have
recently been reported in India and Bangladesh.

INTELLECTUAL PROPERTY PROTECTION IN TRIPs

The TRIPs agreement has many positive features. It is the first worldwide
agreement proteaing pharmaceutical patents. The substantive provisions of TRIPs - when
they take effea - will provide several key benefits to the international research-based
pharmaceutical industry by providing for solid pharmaceutical product patent protection in
all GATT member states. By proterting pharmaceutical patents, TRIPs will in turn foster
investment into innovative new treatments, therapies and cures for many illnesses and
diseases and improve the health of patients around the world.

The TRIPs text provides for:

Patent protertion for pharmaceuticals of at least 20-years duration

from the time of the filing of an application for patents;

Stria limitations on compulsory licensing of patented technology,

including a prohibition on compulsory licensing regimes that

discriminate against specific fields of technology;

Importation of produas in order to satisfy local patent working

requirements; and

Stria enforcement of intelleaual property rights, including special

border measures to prevent the importation of infringing imports.

In summary, the TRIPs text is a substantial step forward as a multilateral
trade agreement. However, the world has changed considerably since the Uruguay Round
negotiations began in 1986. There has been a growing recognition of the imponance of
intelleaual propeny proteaion to high-technology manufaauring industries such as the
pharmaceutical, and its related biotechnology, industry. Tens of thousands of high-
technology pharmaceutical jobs depend on strong worldwide intelleaual property
proteaion. Bilateral intelleaual property agreements, as well as NAFTA, have been
negotiated with many countries from Eastern Europe to Latin America to China that
represent significant advances over the TTUPs text in several areas, most notably in the
timing of the application of new intelleaual property proteaion.

Because TRIPs allows for a 10-year delay in patent proteaion and does not
cover produas in the pipeline, it will not significantly benefit the international research-
based pharmaceutical industry in many rapidly growing markets in Asia, Africa and Latin

299

America until at least 2005. I would also note that the 10-year delayed implementation
period in TRIPs includes an extra five years of delay which discriminates against
pharmaceuticals. For most areas of technology, developing countries have five years in
which to conform to the TRIPs obligations. However, to the extent that countries do not
protea pharmaceutical produa patents, they have an extra five years to conform to TRIPs.
It is regrettable that the United States agreed to a result which discriminates against one of
its most competitive high-technology manufaauring industries.

Another key area in which the TRIPs agreement does not offer adequate
intellectual propeny proteaion is in the vital biotechnology field. TRIPs Article 27.3
would allow GATT signatories to exclude from patentability plant and animal varieties
other than microorganisms, an exclusion which could have significant adverse effects on
biotechnology-derived products.

Biotechnology is another area where the U.S. industry is the world leader.
Of the 167 biotechnology patents for pharmaceuticals/healthcare produas granted in 1993,
146 went to American inventors. After the Uruguay Round goes into effea, the terms of
protection for biotechnology patents should be a major focus of U.S. Government policy.
Furthermore, I would note that the United Nations Biodiversity Convention is currently
being considered by the Senate for ratification. While the Convention includes some vague
provisions regarding the proteaion of intelleaual property derived from biological
resources, U.S. participation in the Convention based on the U.S. interpretive statement,
provides another opportunity for the United States to protect the intellectual property of
biomedical inventions. Thus, PhRMA supports ratification by the U.S. Senate of the
Biodiversity Convention.

Significant progress toward better intellectual property protection for
pharmaceuticals has been achieved by U.S. negotiators in NAFTA and in many bilateral
negotiations conduaed under the authority of the Special 301 provisions of U.S. trade law,
outside of GATT. All of these agreements take effea much sooner than does the TRIPs
text for developing countries.

Since the enaament of the Trade and Tariff Aa of 1984, intellectual
property infringement has been defined as an unfair trade praaice. Both the Congress and
the Executive Branch have supported vigorous enforcement of Seaion 301 to enforce
intelleaual property rights abroad. It is largely as a result of this consistent U.S. policy
that intelleaual property rights are included - for the first time - in a GATT agreement.
PhRMA looks forward to the opportunity to work closely with the Administration and
the Congress on Uruguay Round implementing legislation to ensure that the United States
retains the ability to enforce intelleaual property rights during the delayed implementation
period. Expanded use of Seaion 301, or other means, are appropriate measures to consider
in the context of Uruguay Round legislation.

300

The willingness of both the Executive Branch and Congress to make patent
protection for pharmaceuticals a priority underlines the importance of this industry to the
nation's economy. Use of Special 301 of U.S. trade law has been successful in achieving
numerous bilateral intelleaual property agreements with foreign countries. Importantly,
improvements in intelleaual property protection around the world have come not only as
a result of U.S. 301 actions, but because countries now understand that intellectual
property protection promotes their own economic interests. The importance of effective
patent protection to pharmaceutical innovation is indeed recognized internationally.

CHANGES TO U.S. PATENT TERM

PhRMA has also been concerned about how the United States might change
U.S. patent term in the context of Uruguay Round implementation. Anicle 33 of the
TRIPs Agreement requires that signatory countries provide a term of patent protection
that does not end before twenty years from the date a patent application is filed. Section
154 of U.S. patent law must be modified in order to satisfy this commitment.

In general, PhRMA supports implementation of GATT through enartment
of those minimum changes in domestic law which are necessary to make U.S. law
consistent with GATT obligations. PhRMA also fully supports the Administration's
efforts to achieve over the long-term greater harmonization of U.S. patent laws with those
of our trading partners. However, harmonization should only be agreed to by the U.S. if
acceptable improvements are made in the laws of other countries, notably Japan. Recent
U.S. negotiations with Japanese authorities appear to be appropriate first steps in this
harmonization effort.

The Administration's proposal is to adopt, at this time, a 20-year from filing
patent term as part of GATT implementation. In those instances where patent issuance
would be delayed due to an interference proceeding or secrecy order, the patent term
would be extended up to five years to compensate for the delay- An effective patent term
of fewer than seventeen years from date of issuance could also result from other instances
of extended prosecution. PhRMA would support the Administration's legislative proposal
with respect to a twenty-year term if it also includes a provision for extension of the term
in instances where the patent applicant successfully pursues an appeal. A pany whose
application is initially denied but who later prevails after appeal should be able to receive
an extension to make up for the patent term lost due to the appeal.

In addition, the Patent and Trademark Office should implement several
administrative policies to ensure that high technology inventions, including pharmaceutical
and biotechnology discoveries, will not see the current 17-year patent term reduced
unintentionally. The TTUPs agreement was negotiated in order to force countries that do
not have adequate intellectual property protettion to improve their laws and should not be
implemented by the U.S. in a fashion which could cause erosion of patent term in this
country. There should be a firm commitment to issue detailed guidance to examiners to

301

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minimize the number of cases where applicants would be required to submit the results of
human clinical trials. In many instances, especially in the area of AIDS research, the
Patent and Trademark Office requirement has become onerous and has resulted in
unnecessary delays in patent issuance, in our view. There should also be a Patent and
Trademark Office commitment to recruit, train, and retain an adequate number of skilled
examiners in complex technologies, such as biotechnology. Finally, the Administration
should regularly report to the appropriate Congressional committees the status of patent
pendency and patent interferences to guarantee that the vast majority of applications are
fully processed within three years. Implementation of these administrative policies will help
to ensure that U.S. patent applications are examined within three years without
jeopardizing the quality and integrity of the overall examination process.

CONCLUSION

Developments around the world in the past few years have shown that
increasing numbers of countries recognize the importance of intellectual property
proteaion to their economic development. The U.S. Government and these
Subcommittees have long understood the vital role of innovative, high-technology
industries .■such as pharmaceuticals to U.S. economic health.

Patent pirates abroad are resisting this trend in order to protect entrenched
domestic interests which thrive on appropriating others' patented technology. Special 301
anions have been successful in stopping or at least reducing such theft in a number of
countries. When it takes effea, the GATT TRIPs accord will provide the legal basis for
stopping such theft. In the wake of the Uruguay Round agreement, we must, together,
keep up the fight on all fronts and use every available means afforded by U.S. international
economic diplomacy to eliminate patent piracy.

In conclusion, our industry continues to rely on the strong support both of
the Administration and Congress in order to achieve the objective of effective intelleaual
propeny protection abroad. I am here in particular to emphasize the help we need in
ongoing aaivities. At this moment, countries such as Argentina, Brazil, and Turkey are
engaged in legislative consideration of patent law reforms. Mr. Chairmen, we need the
help of these Subcommittees as well as Ambassador Kantor to see that these and other
countries do what is right.

Mr. Chairmen, that concludes my prepared statement. I will be pleased to
respond to any questions that you or other Members of the Subcommittees may have.

302

Mr. Hughes. Ms. Nelsen, welcome.

STATEMENT OF LITA NELSEN, DIRECTOR, TECHNOLOGY LI-
CENSING OFFICE, MASSACHUSETTS INSTITUTE OF TECH-
NOLOGY, CAMBRIDGE, MA

Ms. Nelsen. Thank you. Mr. Chairman, my remarks are in the
context of the use of patents to promote technology transfer from
university research to industry, and I very much appreciate the op-
portunity to present this perspective to the committee today.

Universities are now filing over 3,000 patents per year in the
United States and under the Bayh-Dole Act, granting over close to
2,000 licenses per year to industry. A recent survey of the Associa-
tion of University Technology Managers estimated that over
200,000 jobs in the United States have been created through uni-
versity licensing and the consequent industrial development of uni-
versity technology.

MIT alone has had an average of 110 U.S. patents per year is-
sued to it in the last few years, and in the past 5 years, MIT has
granted over 350 licenses, including enabling licenses to almost 50
startup companies, if we count only those that have at least a half
a million dollars invested in them.

The key fact in university technology transfer work is that the
technology arising from university research is embryonic. It is early
and it is unproven. Commercial development of such technology re-
quires substantial investment and is very risky. It is also a long-
term process. Studies have shown that the average university li-
cense which does finally yield a product on the market, and many
don't, of course, has its first product on the market 8 years after
the license is signed. Biotechnology licenses may take even longer.

Patents are therefore crucial in the process. A company taking
the risk of developing early university technology must be reason-
ably assured of strong patent protection for a commercially signifi-
cant period of time in order to recoup its investment in this devel-
opment.

The 20-year-from-filing change proposed in the current bill runs
the risk of substantially reducing the patent protection available
for companies investing in university technology. Let me explain.

Universities are in the knowledge dissemination business. Publi-
cations are the lifeblood. It is vital so that other scientists can
learn from and build on our discoveries. Because of this, we fre-
quently must file patents in a very early stage, rather than delay
publication. Continuations in part filed as the research proceeds
are then key to perfecting the patent protection.

The additional patent life flowing from these continuations in
part under certain circumstances compensates for the time lost by
the very early first filing. A change in this procedure would force
many universities to withhold publication in order to perfect the
patented invention and postpone patent filing until the invention
has been fully developed. This would not be to anyone's benefit.

Also, university inventions are frequently ahead of their time. I
can cite you a number of MIT technologies which have become com-
mercially important only when their patents were near expiration.
Any shortening of patent life most seriously impacts the most for-
ward-thinking technologies, which are the very types of tech-

303

nologies which universities should specialize in and which we be-
lieve will most benefit the country's fiiture technical and economic
development.

The 20-year-from-initial-filing rule currently being proposed of-
fers a significant danger of shortening the time available for patent
protection and therefore may have a detrimental effect on develop-
ment of university technologies. Although a frequently cited statis-
tic is that the average patent issues 19 months after filing, thereby
implying that a 20-year rule after filing rather than 17 years after
issuance would effectively lengthen patent life, this statistic is
highly misleading. It includes, for example, time from filing of con-
tinuation patents and time from filing of divisionals, thus the ac-
tual average time for issuance from the initial priority date is
much longer than 19 months. Also, leading-edge technology pat-
ents, such as those in biotechnology, sofi:ware and microelectronics
usually take significantly longer than the so-called average patent
to issue.

Therefore, if Congress believes it should proceed with the 20-
year-from-filing rule, may we respectfully advise the following:
One, the Patent Office must be given the resources to examine pat-
ents more quickly.

Second, the Patent Office must be given the resources and char-
ter to increase the consistency and sophistication of patent exam-
ination. Rapid and unthinking final rejections by inexperienced ex-
aminers, which currently force many applicants to file continu-
ations, must be eliminated, since these continuations will now eat
into patent time.

Third, the Patent Office must refrain from overly fine restriction
requirements which currently increase fees at the cost of patent
prosecution expenses. Universities will simply not be able to sup-
port the prosecution of multiple divisionals all at the same time.
But the 20-year-from-priority date will force such simultaneous
prosecution in order to preserve patent life.

Finally, no one should be led to believe that the 20-year-from-fil-
ing rule will lengthen effective patent life. Most of the time, for
high-technology patents, it will shorten life, and more importantly,
will shorten the remaining life of patent protection after the long
development period is finally over and products are on the market.
And, this I am afraid, will decrease the incentive for industry to
invest in commercial development of truly innovative technologies.

Thank you for the opportunity to present these views.

Mr. Hughes. Thank you very much, Ms. Nelsen.

[The prepared statement of Ms. Nelsen follows:]

304

TESTIMONY CONCERNING DRAFT
TRADEMARK/PATENT PROVISIONS FOR GATT

BY LITA NELSEN,

DIRECTOR, TECHNOLOGY LICENSING OFFICE,

MASSACHUSETTS INSTITUTE OF TECHNOLOGY,

BEFORE THE SUBCOMMITTEE ON INTELLECTUAL PROPERTY AND

JUDICIAL ADMINISTRATION, COMMITTEE ON THE JUDICIARY,

U.S. HOUSE OF REPRESENTATIVES

AUGUST 12, 1994

My name is Lita Nelsen. I am Director of the Technology Licensing Office of the
Massachusetts Institute of Technology, and am also a past president of the Association of
University Technology Managers.

My remarks are in the context of the use of patents to promote technology transfer from
university research to industry. I very much appreciate the opportunity to present this
perspective to the committee today.

Universities are filing over 3,000 patents per year in the U.S., and, under the Bayh-Dole
Act, granting over 1500 licenses per year to industry. A recent survey by the Association
of University Technology Managers estimated that over 200,000 jobs in the U.S. have
been created through university licensing and consequent industrial development of
university technology. M.I.T. alone has had an average of 1 10 U.S. patents per year issue
to it. In the past 5 years, M.I.T. has granted over 350 licenses, including enabling
licenses to almost 50 startup companies.

The key fact in our technology transfer work is that the technology arising from
university research is embryonic: it is early and unproven. Commercial development of
such technology requires substantial investment and is very risky. It is also a long-term
process: the average university license which does finally yield a product (and many
fail), has its first product on the market eight years after the license is signed.
Biotechnology licenses may take even longer.

Patents are crucial in this process: A company taking the risk of developing university
technology must be reasonably assured of strong patent protection, for a commercially
significant period of time in order to recoup its investment in this development.

The twenty-years-from-filing change proposed in the current bill runs the risk of
substantially reducing the patent protection available for companies investing in
university technology.

Let me explain:

Universities are in the knowledge dissemination business. Prompt publication is vital so
that other scientists can learn from and build on our discoveries. Because of this, we
frequently must file patents in a very early stage, rather than delay publication.
Continuations-in-part, filed as the research proceeds, are then key to perfecting our patent
protection. The additional patent life flowing from these continuations-in-part
compensates for the time lost by early first filing/. A change in this procedure would
force many universities to withhold publication in order to funher postpone patent filing
until the invention is more mature. This would be to nobody's benefit.

Also, university inventions are frequently "ahead of their time." I can cite you a number
of M.I.T. technologies which have become commercially important only when their
patents were near expiration. Any shortening of patent life most seriously impacts the
most forward-thinking technologies~the very type of technologies which universities

305

should specialize in, and which will most benefit the future of the Country's technical and
economic development.

The twenty-year-from-initial-filing rule cunently being proposed offers a significant
danger of shortening the time available for patent protection and therefore may have a
very detrimental effect on development of university technologies. Although a frequendy
cited statistic is that the average patent issues 19 months after filing (thereby implying
that a 20-year rule would effectively lengthen patent life) this statistic is highly
misleading. It includes, for example, time from filing of continuation patents and
divisionals; thus the actual average time for issuance from the initial priority date is
actually much longer. Also, leading-edge technology patents such as those in
biotechnology, software, and microelectronics, usually take significantiy longer than the
"average" patent to issue.

Therefore, if Congress believes it should proceed with the 20-year-from-filing rule, may
we respectfully advise the following:

1. The Patent Office must be given the resources to examine patents more
quickly.

2. The Patent Office must be given the resources and charter to increase the
consistency and sophistication of patent examination. Rapid and unthinking
"final" rejections by inexperienced examiners, which currendy force many
applicants to file continuations, must be eliminated, since these continuations
will eat into patent time.

3. The Patent Office must refrain from overly fine restriction requirements.
Universities will simply not be able to support the prosecution of multiple
divisionals all at the same time. But the twenty-years-from-priority date will
force such simulataneous prosecution in order to presen': patent life.

4. No one should be led to believe that the 20-year-fit)m-filing rule will lengthen
effective patent life. Most of the time, for high technology patents, it will shorten
life and, more importantly, will shorten the remaining 1- 's of patent protection
after the long development period is finally over and products are on the market
This, I am afraid, will decrease the incentive for industry to invest in commercial
development of truly innovative technology.

Thank you for the opportunity to present our views.

Lita L. Nelsen

Director

Technology Licensing Office

E32-300

Massachusetts Institute of Technology

Cambridge, MA 02139

Tel: 617-253-6966
Fax: 617-258-6790
e-mail: LITA@MIT.EDU

306

Mr. Hughes. Now, Mr. Addison, welcome.

STATEMENT OF KENNEITH F. ADDISON, JR., PRESIDENT,
OKLAHOMA INVENTORS CONGRESS, ON BEHALF OF THE
UNITED INVENTORS ASSOCIATION OF THE UNITED STATES
OF AMERICA, TULSA, OK

Mr. Addison. Mr. Chairman, distinguished members of the com-
mittee, ladies and gentlemen, good afternoon. I will address you
today representing the organized American inventive community
presenting our views relative to the intellectual property provisions
in the proposed GATT treaty.

First, however, let me respond to some of Commissioner Leh-
man's remarks relative to his statistics on patent pendency. We do
not agree, and the experience of our inventors has shown that the
period of pendency is generally much longer than 19 to 23 months.
I have one of my own patents here at the table which was 4V2
years in prosecution, and it only had one moving part. So those fig-
ures are somewhat misleading.

It is very important to note that the Patent Office also controls
many of the delays which Mr. Lehman was speaking of, controls
those delays in that the inventor has no control over the period of
time it takes the Patent Office to return an action to him, how long
it takes them to react. He, the inventor, is statutorily and adminis-
tratively bound to a response period. The Patent Office is not, so
frequently their response periods run much longer than we would
like.

Please understand that we have no quarrel with the GATT legis-
lation, as it relates to tariffs and trade; only to the inclusion of pro-
visions relating to intellectual property. In discussions with our in-
ventors, we have also found that it is going to be more difficult for
them to obtain venture capital if they are unable to provide a fixed
period of time during which they will be protected.

As I doubt that there are any inventors among this august body
and as the public perception of inventors is frightfully inaccurate,
I would like to preface my remarks with a few historic facts about
inventors and their contributions to the technological progress of
these United States. Cartoonist Rube Goldberg made millions of
Americans laugh with his zany cause and effect inventions, and did
a grave disservice to the American inventor.

Contrary to the common perception which he fostered, the Amer-
ican inventor has been responsible for the creation of entire indus-
tries, providing employment for millions. The American inventor
was the driving force behind the industrial revolution which estab-
lished this country as the world's greatest industrial power.
Throughout our history, necessity may have been the mother of in-
vention, but invention was the mother of industry.

What made this happen was the fact that our forebears had the
wisdom to enact strong patent laws giving the inventor the incen-
tive to exercise his art, by providing a fixed term during which he
had exclusive control over his creation and the right to manufac-
ture or market it or allow others to do so for a financial consider-
ation. Strong, inviolable, and unchanging patent laws were the
greatest single factor in the establishment of the American indus-
trial empire.

307

In the early 1980's, pressure was exerted by our trading partners
and a number of multinational corporations to harmonize our pat-
ent laws with theirs. They proposed a treaty, which would dilute
our strong patent laws to make them coincide with their weaker
ones. Under the treaty, we would abandon our system of first-to-
invent in favor of a system of first-to-file, thereby allowing the
fleet-of-foot, and not necessarily the inventor, the right to patent
protection. It would change the term of patents from 17 years from
issue to 20 years from filing, and allow the filing of provisional pat-
ent applications.

The proposal of these unwise, unwarranted and unnecessary
changes brought forth massive opposition from inventors, inventors
organizations, universities, pharmacological firms and a number of
patent law practitioners, and caused Commissioner of Patents and
Trademarks Lehman to hold public hearings in October 1993.

Subsequent to those hearings. Secretary of Commerce Brown an-
nounced on January 24, 1994, that, "the United States would not
seek to resume negotiations of a treaty harmonizing the world's
patent laws at this time."

It wasn't necessary, as our Commissioner of Patents had 4 days
previously executed an agreement with the Japanese Patent Office
accepting some of the provisions of the highly contested and oner-
ous Patent Harmonization Treaty.

Ladies and gentlemen, this is a major breach of the armor that
protects American creativity, and of the public trust. It took 6
years for the U.S. delegation to negotiate the minimum verbiage in
the GATT language, yet, provisions relative to intellectual property
were made mandatory by a stroke of a pen of an administration ap-
pointee. This is a shameless example of political expediency. To
whom does this country belong?

It is inappropriate that any language relating to patent protec-
tion be included in any agreement on tariffs and trade. Certainly,
not without indepth hearings, including as many inventors and
CEO's as it does patent attorneys. Patent laws are not bargaining
chips to be used in trade agreements. We cannot allow our patent
laws to be sacrificed, diminished or revised by gratuitous contract
in the subterfugeous guise of a trade agreement for the benefit of
other nations, to the detriment of our own. Surely, historians will
identify and record this as the most anti-Jeffersonian action of the
Clinton administration.

We call upon you, the members of this committee, to at least ini-
tiate proceedings to revise all language relating to the length of
patent terms in GATT by substituting, "20 years from the date of
filing or 17 years from the date of grant, whichever is longer." Oth-
erwise, honesty to your constituency and the people of this great
Nation demands that you retitle this treaty as the Guaranteed Ar-
rangement for Technological Theft.

Thank you.

Mr. Hughes. Thank you very much.

[The prepared statement of Mr. Addison follows:]

308

Intellectual Property Consultant

Post Office Box 27291

Tulsa. Oklahoma 74149-0291

(918) 245-6465

The following testimony given by Kenneith F. Addisoa, Jr^Pte., a resident
of Tulsa, Oklahoma relates to the proposed unwarranted, unnecessary and
inappropriate changes to the patent laws of the United States which have been
included in the language of the GATT implementing legislation without adequate
Congressional and/or Public hearings. This testimony is in particular opposition
to the changes proposed for the term of patents to 20 years frovRJilLng, rather than
the current 17 years from issue.

The testimony includes a short history of the contributions of American
inventors to the development of the American industrial empire, the history of the
proposals under the Patent Harmonization Treaty, excerpts from testimony given
at the public hearings of the USPTO of October 1993 and the clandestine
implementation of provisions of that treaty, without public knowledge, by the
U.S. Patent Commissioner.

The testimony frirther provides reasons for the removal of intellectual
property issues from the GATT legislation and suggests corrective measures and
an alternative.

These views represent the position of a number of state and regional
iiwentors organizations and of the United Inventonj Association of the United
States of America.

309

IN THE LEGISLATURE OF THE UNITED STATES OF AMERICA

ON THE TWELFTH DAY OF AUGUST, 1994,

Comes now, Kenneith F. Addison, Jr. Pte., to give testimony before the joint House and
Senate hearing of the Committee on the Judiciary.

Mr. Chairman:

Distinguished Members of the Committee on the Judiciary:

Ladies and Gentlemen:

Good Momii^. I come before you today as a member and represotfative of the
of]ganized American inventive community to present our views and state our position
relative to the inclusion of the provisions concerning intellectual property which are
contained in the proposed General Ag^ement on Tarifife and Trade, which we have all
come to know and love as GATT.

As I strongly doubt that there are any inventors among Aiis august body, and as
the public perception of the American independent inventor is more than somen4iat
inaccurate, I should like to preface my remaiks with a few single historical facts
relative to invention, inventors and their contribution to the tectnological progress of
these United States. The late cartoonist. Rube Golcberg, vidiile making millions of
Americans laugfi with his zany "cause and effect" inventions, did a grave disservice to
the American inventor. Contrary to the common perception, i^^ch he fostered, the
American inventor has been responsible for the creation of entire industries and has
provided employment for millions. The American inventor was the driving force which
brouglit about the industrial revolution and established this country as the World's
greatest industrial power. Throughout our history, "necessity" may have been the
"Mother of invention" but, invention has been the "Mother of Industry!"

310

What made this happen was the fact that our forebears had the wisdom to enact
strong patent laws, which gave the creative individual the incentive to exercise his art
by providing a fixed term during which he had exclusive control over his creation and
gave him the right to manufacture and market his invention, or license others to do so,
for a financial consideration. Strong, inviolable and unchanging patent laws have been
the greatest single ^ctor in the establishment of the American industrial empire.

In the early 1980's, pressure began to be exerted by some of our trading partners,
by the World Intellectual Property Organization (WIPO), a United Nations agency and a
number of multi-national corporations, to "hannonize" our patent laws with those of
other nations. They proposed a treaty, under the tenns of which, we would dilute our
strong patent laws to make them coincide with their weaker ones. Under the terms of
this proposed treaty we would be required to abandon our tried and proven system of
"First-to-favent" in favor of a system of "First-to-File," thereby allowing the "fleet-of-
foot," not necessarily the inventor, the right to patent protection; change in term of the
life of patents from seventeen years from date of issue to twenty years from the date of
filing of an application and; would allow the filing of "provisional" patent applications.

Proponents of the change in the length of the patent tenn aiigue that inventors
actually have a longer period of protection under the twenty year (from filii^ term
than they currently have under the seventeen year (from issue) term. In their zealous
support of change, they have coirveniently overlooked the fact that it frequently takes
than three years to prosecute a patent application to issue. Under Patent Office
accounting procedures, the termination of an action, by an examiner is reported as a
con^leted prosecution, when in fact a continuation, continuation-in-part, divisional
application or appeal becomes a new action, still however, subject to the original filing
date. Marry of these prosecutions, especially those involving "pioneer or break-through
inventions" may take as long as 10 to 12 years to issue. One of Gordon Gould's laser

311

patents took 29 years to issue, and the most recent patent issued to this inventor was
five years in prosecution. Wide expenence by independent inventors has clearly shown
that the twenty year (from filing) patent term would senously shorten the actual term of
protection. The greater the technological advance disclosed in the application, the
longer the term of prosecution.

These unwise, unwarranted and unnecessary proposed changes brought forth
massive opposition from independent inventors, inventors organisations, universities,
pharmacological firms, small businesses and a number of patent law practitioners, and
caused Commissioner of Patents and Trademarks Lehman to hold public hearings on
October 7th and 8th, 1993. As a result of those hearings. Secretary of Commerce
Brown announced, on January 24, 1994 that "the United States would not seek to resume
negotiations of a freaty harmonizing the World's patent laws at this time." It wasn't
necessary, as the U.S. Commissioner of Patents and Trademarks had four days
previously, on January 20, executed an agreement with the Japanese Patent
Commissioner accepting the highly contested provisions that are contained in the
onerous Patent Harmonization Treaty, the principal proponent of which, is Japan.

Ladies and Gentlemen, this is a major breach; of the armor that protects American
intellectual property and; of the public tnist! While it took six years for the U. S.
delegation to negotiate the minimum verbiage in the GATT language, the provisions
relative to intellectual property have been made mandatory by a stroke of the pen of an
Administration appointee. This is a shameless example of political expediency! To
whom does this country belong? If appointed officials can now alter, delete, create and
adopt public law and determine National policy~what need have we of the Legislature?

It is inappropriate that any language relating to the term of intellectual property
protection be included in any agreement on taiifTs and trade. Certainly, not without in-
depth hearings, ■wWch would include as many inventors and CEO's, as it does patent

312

attorneys. In the words of former Commissioner of Patents and Trademarks Donald
Banner, "Did Japan require these changes to aid U.S. inventors? Nonsense! Patents in
the U. 3. are trade barriers to goods made m Japan, so Japan wants patent life limited,
patents narrowed and a mechanism to get an early U. S. filing date by filing in
Japanese." Patent laws must not be employed as bargaining chips in trade agreements!
In our remarks before the public hearings on patent harmonization, we clearly stated the
views of the organized inventive commumty when we said: "We applaud and heartily
approve of the desire of other nations that all our patent systems "harmonize." However,
nowhere is it written that we may not make counter-proposals and demands for our own
benefit and for the betterment of the Global inventive community. And certainly,
nowhere is it written that we must bow-down to the greed motivated demands of multi-
natioruil corporations, either foreign or domestic. Accession to their demands would
imperil the resource of American creativity by, invalidating our current strong system of
intellectual property protection; removing the incentives for creativity and innovation
and; opening the way for ranqjant patent piracy."

'Tf indeed the motives of our trading partners are sincerely altruistic; if indeed
they do wish to see a World in which the patent laws of all nations are equal and
equitable; where each nation, great or small, is afforded an equal opportunity to
contribute to the progress of mankind; then we would suggest, as an alternative to the
present plan, wdiich would devastate our present system of patent laws and procedures,
that we let them prove the sincerity of their desire by bringing their own inequitable
systems into "harmony with the tried and proven system of the United States of
America, which brought about the development of the greatest industrialized society this
World has ever known!"

The laws which made this development possible were wisely written by our
forebears, under Constitutional provision; have been proven for over 200 years and;

313

have made this nation the envy of every other nation on Earth. We cannot allow those
laws to be sacrificed, diminished or revised by gratuitous contract in the subtertiigeous
guise of a "trade agreement" for the benefit of other nations, or to satisfy multi-national
corporate greed, to the detnment of our own! Surely, historians will identify and record
this as the most anti-JefFersonian action of the Clinton Administration.

We call upon you, the members of this committee, to institute proceedings to
remove all proposed language relating to the length of intellectual property terms from
the GATT, replacing them with "twenty years from the date of filing or seventeen
years from the date of the grant, whichever is longer." Otherwise, in honesty to your
constituency and the people of this great Nation, you should properly re-title the
treaty as the "Guaranteed Arrangement for Technological Theft"

When you remove "of the people, by the people and for the people," all that
remains is "Government"

314

-Ke-nncLth. 17. c/jdAi^on., ^x.
Intellectual Property Consultant

Post Office Box 27291

Tulsa, Oklafioma 74149-0291

(918)245-6465

COMMENTS ON THE GATT IMPLEMENTING LEGISLATION

The proposed language for the change in the patent term
proposed in the GATT impementing legislation is inconsistent
and improper.

Historically, for over 200 years since the original patent
act of 1790, patents have had a term measured from the issue
date. This is a definite term and it is fair to all. However,
the proposed GATT implementing legislation would change this
term from a definite period measured from the issue date to
an indefinite period measured from the filing date. Because
it is uncertain how long the Patent Office will examine a patent
application before issuance and because the proposed term keeps
the clock running during the examination in the Patent Office,
the term of a patent is uncertain and is dependent on the
administrative delays in the Patent Office. Such administrative
delays have never counted against the inventor since the original
American patent legislation passed in 1790, but now the proposed
GATT legislation will change the historical American patent
system and count administrative delays against the inventor.
Remarkably, if the administrative delays exceed 20 years, which
is sometimes the case, a patent can have expired before it
issued.

The GATT treaty does require a minimum of 20 years from
issuance. However, this can be satisfied by a term that is
the greater of 20 years from filing or 17 years after the

315

date of the grant. This will preserve the historical patent
term in effect for over one-hundred years and will satisfy
the GATT treaty. This is also the same proposed language in
the GATT implementing legislation that applies to patents
currently in force.

However, the proposed language for new patents is
significantly different. The "or" phrase is dropped out, leaving
the proposed term to be 20 years from the filing date. This
is a radical departure from the historical term measured from
the issue date. This is a term that has resulted in
unconscionable administrative delays and administrative misuse
in Japan and in Europe, reducing the terms of many patents to
short periods of time.

Even worse, the proposed language for new patents further
reduces the term by counting from the filing date of ancestor
patent applications. This too is contrary to our historical
term and improperly penalizes American inventors. For example,
university inventors often publish their work and hence have
to file an early patent application to preserve their rights.
Then, as the invention matures, they file continuation
applications describing the improvements. The proposed change
in the patent term will unfairly reduce the patent term for
such university inventors. Also, the biotechnology inventors
complain that they often need to file continuations in order
to complete the examination process, but the proposed patent
term will unfairly penalize them by running the clock during
the continuation process.

The bill provides for some extensions of time; up to 5
years for a secrecy order, an appeal to the Court of Appeals,
and an interference proceeding. Why limit the extensions of
time to only three types of delay? These are very rarely
encountered delays. Why are the major delays ignored? An

316

inventor can be delayed for many years if he or she appeals
to the Board of Appeals because of an unreasonable decision
by an examiner or by the examiner suspending prosecution of
an application, but the proposed patent term is not extended
for such delays. An inventor can be forced to file a continuing
application by the examiner restricting the patent claims,
causing additional years of delay, but the proposed patent term
is not extended for such delays. An inventor can be delayed
for years when the Patent Office loses a file history, or when
the Patent Office mistakenly abandons a patent application,
or for multitudes of other Patent Office delays. Previously,
such Patent Office delays were not counted against the inventor,
but with the proposed change in the patent term, the inventor
will be penalized for administrative delays. There are so many
types of delays which are no fault of the inventor that all
of the delays cannot possibly all be listed in the proposed
legislation for extensions of time. Paying lip service with
extensions of time for three rare delays and ignoring the many
significant and frequent delays is improper.

The official Patent Office publication entitled Story of
the U.S. Patent and Trademark Office (August 1988) states "The
American patent system . . . has become the model for the patent
systems of numerous foreign countries." There is no need to
make such a major change in the historical patent term that
is fair to all and that is recognized as the model for other
countries. The GATT requirement can be satisfied by a term
that is the greater of 20 years from filing or 17 years after
the date of the grant. This language already appears in the
proposed legislation for current patents and should also be
the term that is applied to new patents.

317

THE FIGURES SUPPORTING THE PROPOSED NEW PATENT TERM ARE
MISLEADING

The proponents of the change in the patent term base their
position on misleading figures on the average pendency of a
patent in the Patent Office. However, if these proponents are
successful in legislating this change, the average pendency
figure will jump significantly; e.g., possibly a 300% jump
in average pendency for biotechnology patents. The reasons
are discussed below.

Continuing patent applications are an essential part of
the American patent system. The average pendency figures are
based upon resetting the term clock when a continuing application
is filed, but the proposed term change will keep the term clock
running for a continuing application. This is misleading.

The average pendency statistics should be recalculated
based upon the proposed patent term, where the pendency of
continuing applications is counted from the effective filing
date (the priority date). This is how it will be counted if
the proposed change in the term is passed into law and this
is how it should be counted in the average pendency numbers.
The proponents of the change should not be permitted to use
a model of the current patent term to illustrate the proposed
patent term. The proponents of the change must be required
to use a model of the proposed patent term to illustrate the
proposed patent term.

The proponents of the change contend that the average
pendency (the average time that a patent is pending in the Patent
Office before it issues) is less than 2 years. They then
conclude that a change in the term to 20 years from filing (minus
the 2 year pendency) is more time than the historical term of
17 years from patent issuance and hence that the change is good

318

for the inventors and for America. But, if the term is changed,
the average pendency will increase significantly and the average
term will be reduced significantly. This is because it will
be impossible to continue to hide the fact that the average
pendency is calculated significantly differently in the proposed
change. The result is that the patent term under the proposed
term will be significantly less than the calculations being
suggested by the proponents of the change.

The proponents for the change to the patent term should
have better studied the ramifications of the change before going
on record about the effects of the change. They should have
studied the different patent classifications and they would
have found that the cutting edge technologies, such as
biotechnology, and the complex technologies, such as electronics,
have much longer average pendencies than reported. They should
have studied the different patent complexities and they would
have found that the more complex patents have much longer average
pendencies. They should have studied the different assignees
and they would have found that the large companies have much
lower pendencies while the small growth companies (who create
the new jobs) and the individual inventors have much longer
pendencies. They should have studied the delays and they would
have found that the inventors do not cause the delays because
the delays are controlled by the Patent Office. They should
have studied the foreign patent systems that use the proposed
term measured from the filing date and they would have found
that the delays in the foreign patent offices are very long.
But they did not make such studies, or at least they did not
report the results of such studies to the public or to Congress.

If the proponents of the change really wanted to strengthen
the American patent system by increasing the length of the patent
term, they would have changed the patent term from the current
17 years from issuance to a term of 20 years from issuance.

319

This is the historical American measure of the Patent term (from
issuance) and this satisfies the GATT requirements. Instead,
the proponents propose an uncertain patent term that is measured
from the filing date (the foreign measure of a patent term which
depends on how long the application is pending) and then they
cite erroneous figures on average pendency.

THE TRUTH ABOUT SUBMARINE PATENTS

We too are against submarine patents. However, true
submarine patents are very rare. Many innocent patents are
being called submarine patents by those having a larger agenda.
This agenda is wea)cening the American patent system. Mr. Robert
E. Muir, General Patent Counsel for Caterpillar Inc. representing
the National Association of Manufacturers at the August 12,
1994 Congressional hearing, while testifying against submarine
patents admitted that "submarine patents are relatively rare".

The term "submarine patents" has become a rallying cry
for those trying to weaken the American patent system. For
example, allegedly because of submarine patents, the Japanese
and some multinational corporations are demanding that America
change the patent term to be measured from the patent filing
date rather than the current historical American patent term
that is measured from the patent issue date. This seemingly
small change can have very significant consequences. The
historical American patent term has been evolved for over 200
years since the original patent law was passed in 1790. It
has been tuned by great men from Thomas Jefferson to the present
in order to carefully protect the rights of the public and the
inventors. "The American patent system ... has become a model
for the patent systems of numerous foreign countries", as told
in the official Patent Office publication entitled Story of
the U.S. Patent and Trademark Office (August 1988). Now, making
piecemeal changes in our historical patent system can have

320

disastrous effects and can involve decades of litigation before
the full impact of the changes are known. After 40 years, the
Federal Circuit is still clarifying the affects of the 1952
patent legislation.

If the objective was truly to stop submarine patents, the
objective could be achieved in a much simpler, more focused,
and less harmful manner. However, the true objective is to
weaken the American patent system, where "submarine patents"
is merely a rallying cry.

Other nations have evolved their patent systems to
facilitate the copying of technology and the strengthening of
large multinational corporations. This is an important reason
why these other countries do not have the entrepreneurial and
innovative capability upon which America has always depended.
Job creation and job growth in America comes from small
companies. The large multinational corporations are downsizing
and laying off workers.

The promoters of the change in the patent term use
misleading and erroneous arguments. They argue that differences
in the patent term cause American companies to be at a
disadvantage because foreign companies are not constrained by
American patents having a different term. For example, Mr.
Robert E. Muir testified at the August 12, 1994 Congressional
hearing that submarine patents "puts U.S. manufacturers at a
competitive disadvantage relative to foreign ones."

Foreign patent laws govern all companies ( foreign and
American alike) operating in the foreign country and American
patent laws govern all companies (foreign and American alike)
operating in America. Hence, American companies do not have
any competitive disadvantage. Although American companies are
subject to American patent laws when making, using, or selling

321

in America; foreign companies are also subject to American patent
laws when making, using, or selling in America. Hence, there
is no competitive disadvantage between American companies and
foreign companies as a result of the differences in the patent
term.

The International Patent Owners association (IPO) identified
what they consider to be a submarine patent. This is U.S. Patent
No. 4,076,698 (the '698 patent) which was pending in the Patent
Office for 21 years. However, any delays were under control
of the Patent Office and were caused by or at least condoned
by the Patent Office. There is no need to change the patent
term to prevent unnecessary delays because the Patent Office
presently has total control over such delays.

An inventor cannot delay the prosecution of a patent
application. The Patent Office controls all of the time delays
within the Patent Office. The inventor must comply with very
strict Patent Office rules, otherwise his patent application
is abandoned and he looses any possibility of getting a patent
on that patent application.

The Patent Office operates under a rule known as second
Action final. This means that the inventor has a right to two
Actions from the patent examiner, each Action having a 3 month
response time. The inventor has the right to appeal and is
given a two month period for an Appeal Brief and sometimes a
one month period for a Reply Brief. The inventor can buy
extensions of time which extend the period for each Action and
each brief to a maximum of six months. Hence, an inventor has
a right to file four documents and is given a total of 9 months
to file these documents. Also, an inventor can buy an extension
of time for each of the four documents totaling another 15
months, but only at significant expense to the inventor.

322

All other delays are on the part of or at the discretion
of the Patent Office. The inventor has nO' time-related rights
in the Patent Office beyond the above mentioned 24 months.
Sometimes the patent examiner will generate extra Actions, but
this is for the convenience of the examiner, often because the
examiner wants to change his position or because he wants to
redo a prior art search. On rare occasions, the Patent Office
will declare an interference. The Patent Judge, not the
inventor, schedules the interference proceedings.

An inventor can also appeal to the Court of Appeals and
to the Supreme Court. Such appeals are infrequent and have
short times for filing documents.

The ' 698 patent is a good example of the detrimental effects
of delays on an inventor. After 21 years, the licensing rewards
of any R&D effort is of little consequence. The value of money
21 years in the future has diminished to a very small amount,
possibly 10% because of the time value of money. Legal expenses
for 21 years can exceed the R&D expenses and further reduces
the significance of any reward. Loss of opportunity, not being
able to protect the technology when it is fresh and when the
company is trying to penetrate the market, is another important
loss. Risk of obsolesce is paramount because technology is
often obsolete after a few years and usually is of little, if
any value after 21 years. Also, inventors have grown much older,
company management has changed, stockholders have invested in
other companies, and many participants have retired or died.
Those who facilitated the original R&D and the patent filing
and prosecution are most certainly not in a position with the
company to reap any rewards after 21 years. Those who say that
delay helps the inventor are plain wrong. Delay hurts the
inventor. Who would invest in technology if they could predict
that the expenses would continue for 21 years and that the reward
was highly speculative?

323

If the proposed patent term (20 years from the filing date)
was in effect, a patent delayed by administrative procedures
for 21 years would have expired before it was issued. This
would add insult to the injury of the delay and would further
reduce the incentive for companies to invest in R&D.

It is necessary to identify and to limit submarine patents,
but it is also necessary to protect innocent inventors that
are victims of administrative delays.

THE DEMOCRATIC PROCESS SHOULD NOT BE CIRCUMVENTED BY THE GATT
IMPLEMENTING LEGISLATION

The GATT implementing legislation includes unnecessary
and inappropriate changes to our historical patent term. For
over 200 years (from the first patent law in 1790), American
patents have had a term measured from the issue date of the
patent. Now, acquiescing to the demands of the Japanese and
some multinational corporations, the Administration is attempting
to change this term to be measured from the filing date of the
patent. Because a more important patent and a more complex
patent takes a relatively long time to issue, such patents will
have a significantly reduced term under the proposed change
in the patent law. Because University researchers publish their
work early, the law requires them to file patent applications
early to protect their rights followed by continuing applications
as their work progresses. As a result. University patents will
have a significantly reduced term under the proposed change
in the patent law. Because cutting edge technologies, such
as biotechnology, is complex and competitive there are many
delays in the Patent Office that will cause a significantly
reduced patent term under the proposed change in the patent
law.

324

This patent term change (and other changes) to the patent
system were piggybacked onto GATT without advanced public
disclosure and without proper hearings. Now; as a result of
the opposition of inventor groups, biotechnology groups, and
pharmaceutical groups; a last minute hearing was scheduled on
only one week notice. The legislation, which had been withheld
from Congress and from the public for months was first made
available only one week prior to the hearing. The panels of
witnesses pitted seasoned attorneys on the PRO side (for the
patent changes) against lay persons on the CON side (against
the patent changes). The organizers of the hearing selected
the current Commissioner of Patents, Mr. Lehman, and a former
Commissioner of Patents, Mr. Mossinghoff, to testify for the
PRO side yet they refuse to permit a former Commissioner of
Patents, Mr. Banner, to testify for the CON side.

This is not the American way. This is not Democracy,
This should not be permitted.

Kenneitn F. Adaison, Jr.Pte.,
Presiraent, Oklahoma Inventors Congress,
Director, United Inventors Association
of the United States of America.

325

Mr. Hughes. Mr. Muir, welcome.

STATEMENT OF ROBERT E. MUIR, GENERAL PATENT COUN-
SEL, CATERPILLAR INC., ON BEHALF OF THE NATIONAL AS-
SOCIATION OF MANUFACTURERS

Mr. MuiR. Thank you.

Among other things, Mr. Chairman, perhaps it wasn't noted that
I, too, am an inventor, but not quite as successful because I never
received a patent, only inventions, so maybe I am only a frustrated
inventor.

You might also want to note that in the decade that I was in pri-
vate practice, my largest client was a firm of about 200 employees,
and I remember well in 1974 when 13 of my clients went bankrupt
and it wasn't because they did not have good patent protection.

I am going to be very brief in summarizing the written testi-
mony, and then if I may, give you one example from my personal
experience.

Speaking on behalf of the National Association of Manufacturers,
NAM strongly supports the GATT Uruguay round and urges timely
passage of legislation to implement this historic agreement. NAM
supports the Trade-Related Aspects of Intellectual Property provi-
sions. We believe that bringing intellectual property protection
under GATT will significantly benefit U.S. inventors.

The NAM recognizes that the TRIPs provisions are not perfect
and urges the U.S. (jovernment to pursue improvements in intel-
lectual property protection on both bilateral and multilateral bases.
The NAM also recognizes that 35 U.S.C. 104 must be amended to
permit foreign invention date proofs but recommends language that
is somewhat different than that proposed by the legislation and,
specifically, we believe a change to section 102(g) is also necessary.

Let me switch to the patent term.

The NAM supports adoption of a 20-year patent term measured
from the date of filing in lieu of our current 17-year term from the
date of grant. We believe the 20-year term from filing provides a
term similar to present law, and further, we believe the 20-year
term from filing more effectively balances the individual's reward
of limited exclusivity and the public's benefit from disclosure of
new technology and does so with far less potential for abuse.

Let me give an example from my personal experience. Turning
back the clock to 1986, I have here three patents, none of which
are mine, none of which are Caterpillar's, none of which relate to
a U.S. inventor. These patents were made by a British gentleman
and was assigped to his employer, Molins, Ltd., of London, Eng-
land. And Molins is not a small company.

The original patent application was filed in 1966, this one issued
in 1986. Let me count with you, if you would, the — how this history
went. I am not making this up, but I will paraphrase it because
otherwise it is boring as heck. This patent issued in 1986 all from
an application filed in 1982, which was a division of an application
filed in 1970, which was a continuation of an application filed in
1967, which was a continuation in part of another application filed
earlier in 1967 and another one filed in 1966. And if you wish for
the record, this is patent number 4,621,410.

326

Now, in 1986, Caterpillar had announced that, to be competitive
in a worldwide competitive situation, it was going into a factory
modernization program to spend $2 billion to allow us to supply
from a U.S. base. It was at that time that we received notice of in-
fringement with an offer to license it at 2 percent.

Now, $40 million in royalty makes you a pretty good target, but
it also would put a heck of a dent in my budget, so we were talking
about a serious situation. Here is the resulting license, somewhat
less thick than these, and with my initials on the final page, page
5, I believe. I am not going to tell you how many millions of dollars
this cost us, but this cost U.S. industry, because of these submarine
patents, millions of dollars. For our foreign competitors, all of the
patents had expired.

If we are to allow submarine patents to exist, you are putting
U.S. industry at a very serious disadvantage to foreign competitors
who can use the information of any U.S. inventor who does not
have a foreign patent and they can supply the foreign markets.
True, they may not be able to supply the U.S. market, but those
of us who want to be U.S. manufacturers are at a serious disadvan-
tage if we are going to have these.

And so while 20 years may not be the ultimate, Mr. Chairman,
it represents a balancing of interests, and I submit to you that as
Mason said to Dixon, we have got to draw the line somewhere.

Thank you.

[The prepared statement of Mr. Muir follows:]

327

Testimony of
Robert E. Muir
General Patent Counsel
Caterpillar Inc.
On Behalf of the
National Association of Manufacturers
August 12, 1994

Executive Summary

The National Association of Manufacturers (NAM) strongly supports the GATT
Uruguay Round and urges timely passage of legislation to implement this historic
agreement.

The NAM supports the Trade-Related Aspects of Intellectual Property (TRIPs)
provisions. Bringing intellectual property protection under GATT disciplines will
significantly benefit U.S. inventors.

The NAM recognizes that the TRIPs provisions are not perfect and urges the U.S.
Government to pursue improvements in intellectual property protection on both
bilateral and multilateral bases.

The NAM recognizes that 35 USC 104 must be amended to permit foreign invention
date proofs, but recommends language somewhat different than that proposed by the
legislation. Specifically, we believe a change to § 102(g) is also necessary.

The NAM supports adoption of a 20-year patent term measured from the date of
filing in place of our current 17-year term from date of grant. We believe the 20-
year term from filing provides a term essentially similar to present law. Further, the
NAM believes a 20-year term fi-om filing more effectively balances the individual's
reward of limited exclusivity and the public's benefit from disclosure of new
technology — and does so with far less potential for abuse.

The NAM supports creation of a system of internal priority and provisional
application. We believe, however, that the imposition of a $150 provisional filing fee
is unwarranted.

The NAM has no formal position on patent term extension for patents involved in
interference proceedings.

328

TESTIMONY

ROBERT E. MUIR

General Patent Counsel

CATERPILLAR INC.

on behalf of the
NATIONAL ASSOCIATION OF MANUFACTURERS

before the

SUBCOMMITTEE ON INTELLECTUAL PROPERTY &

JUDICIAL ADMINISTRATION

COMMITTEE ON THE JUDICIARY

U.S. HOUSE OF REPRESENTATIVES

and the

SUBCOMMITTEE ON PATENTS, COPYRIGHTS & TRADEMARKS

COMMITTEE ON THE JUDICLUIY

UNITED STATES SENATE

on
GATT TRIPS IMPLEMENTING LEGISLATION

August 12, 1994

Messrs. Chairmen and members of both Subcommittees, my name is Robert Muir and
I am General Patent Counsel for Caterpillar Inc. I am also past chairman of the National
Association of Manufacturers' Intellectual Property Subcommittee, and represent them here
this afternoon as well. On behalf of both Caterpillar and the NAM, I want to thank you for
giving me the opportunity to present our views on GATT TRIPs implementing legislation.

The NAM Intellectual Property Subcommittee's membership is broadly representative
of NAM member companies and includes a number of representatives from affiliated
manufacturing trade associations. Through its IP Subcommittee, the NAM has followed
closely the various changes to U.S. patent law made or proposed over the past several years.
We have considered carefully the evolving nature of intellectual property in an increasingly
global economy and how our U.S. intellectual property protection regime affects the ability
of U.S. manufacturers to do business. We are on record as supporting changes in U.S.
patent law that reflect intellectual property's growing importance in fiercely competitive
world markets. In short, strong and effective protection of intellectual property rights is not
an abstraction for NAM member companies; it is a very real, bottom-line concern.

329

GATT TRIPS

Overall, the NAM views the GATT Uruguay Round as perhaps the most important and far-
reaching international trade agreement ever achieved. The NAM has strongly supported the
Uruguay Round since its inception, and we continue to urge timely passage of implementing
legislation. We have offered advice on a range of issues yet to be resolved in implementing
legislation, but I will confine my remarks here today to the subject at hand, that is, the
intellectual property provisions.

The Trade-Related Aspects of Intellectual Property (TRIPs) portion of the Uruguay
Round brings intellectual property under GATT discipline for the first time. In doing so, the
TRIPs agreement provides for a significant enhancement in the protection of intellectual
property rights around the world. As the world's leading creators of intellectual property,
U.S. innovators will benefit substantially from the increased protections that will be available
as a result of the TRIPs agreement. In the NAM'S view, the TRIPs provisions represent a
major victory for the United States.

With that said, the NAM believes that there is a need to address certain unduly long
and discriminatory phase-in periods. In some cases, key U.S. industries and products, such
as pharmaceuticals and agricultural chemicals, will have no intellectual property rights
protection under the new Worid Trade Organization (WTO) for a decade or more in
important markets in Asia, Africa and Latin America. With this problem in mind, the NAM
Board of Directors has urged the U.S. Government "to include in the implementing
legislation provisions that will maximize the ability of the U.S. Government to pursue U.S.
intellectual property rights objectives on bilateral or multilateral bases in the future." The
NAM Board further stated, "We expect the U.S. Government to use whatever means it may
have to offset these deficiencies in the TRIPs agreement and so minimize the commercial
risks to U.S. companies regarding the treatment abroad of U.S. intellectual property."

While the discussion draft before the Subcommittees this morning proposes several
changes to U.S. intellectual property statutes, I intend to focus my comments on proposed
changes to §104 and §154 of title 35 of the United States Code.

Foreign Invention Date Proofs and §104

Until enactment of legislation implementing the North American Free Trade Agreement
(P.L. 103-182), §104 of U.S. patent law generally did not permit a patent applicant to
establish an invention date based on activities taking place outside the United States. Because
of these limitations, U.S. inventors were able to prove dates of invention more readily and
completely than inventors operating outside the United States. Not surprisingly, Canada and
Mexico sought to change this aspect of U.S. patent law, which they viewed as discriminatory
towards their nationals. As a result, NAFTA implementing legislation amended §104 to also
allow consideration of inventive activities in a "NAFTA country" to prove invention dates.

The NAM and most other interested parties were given little opportunity to comment
on the changes made to §104 as a result of the NAFTA. While we championed the NAFTA
and certainly strongly support its precedent-setting intellectual property provisions, we would

330

have amended §104 somewhat differently than it was. NAM Intellectual Property
Subcommittee members believe that simply expanding the number of countries not deemed
"foreign" for purposes of §104 is not the best way to alter the alleged discriminatory nature
of this section.

Expanding §104 to include Canada and Mexico was one thing. Expanding §104 to all
member countries of the new WTO is quite a different matter, and one that raises potentially
significant problems. Most ominously, changing §104 along the lines proposed by the draft
legislation wiU essentially globalize U.S. interference practice. An interference is a
proceeding (unique to the U.S. first-to-invent system) to determine which of two or more
inventors was the first to invent and, therefore, entitled to a patent. Interferences are already
too complicated and costly when limited to proofs of inventive activity only in the United
States. Globalizing interferences (and discovery) will make a bad situation far worse.

Another potential problem in simply expanding §104 to include WTO signatory
countries is the apparent resulting asymmetry between §104 and § 102(g). Section 102'
generally establishes conditions for patentability. Section 102(g) specifically provides that a
person shall be entitled to a patent unless "before the applicant's invention thereof the
invention was made in this country by another who had not abandoned, suppressed or
concealed it." Under the proposed change to §104, a foreign applicant will be able to rely
on inventive activity in any WTO member country to establish an invention date for purposes
of obtaining a U.S. patent. Unless the "in this country" requirement of § 102(g) is also
changed, a second inventor could claim that he, too, is entitled to a patent since no one had
previously invented the item in this country. In other words, two "winners" might emerge
from an interference proceeding rather than a winner and a loser.

As an alternative to the draft language under consideration this morning, the NAM
suggests language based on that crafted by the American Intellectual Property Law
Association (AIPLA) that is appended to this testimony. The AIPLA proposal would make
changes to both §104 and § 102(g) to avoid the confusion that could result in changing only
§104. The NAM would, however, alter the AIPLA 's proposal slightly by limiting the proofs
of inventive activity to NAFTA and WTO member countries, as opposed to all foreign
countries.

Adoption of a 20- Year Patent Term

The NAM strongly supports adoption of a 20-year patent term measured from the date of
filing. Amending §154 is one of the most significant changes to U.S. patent law required by
the TRIPS agreement. The NAM appreciates that, to some, this represents a major change in
U.S. patent policy. Nevertheless, we believe the advantages of moving to a 20-year term
from date of filing far outweigh any arguments for retaining the 17-year from grant patent
term.

The measure of the patent term should accomplish at least three goals. First, it
should provide a reasonable prospective incentive for persons investing in risky research and
development projects as well as a fair exclusivity reward for those whose investments have

331

brought patented technology to the marketplace. Second, an effective patent term should
serve the public good through the appropriate disclosure of new technologies and the
resulting advancement of the state of the art. Third, an advantageous patent term should
prevent the unwarranted extensions of patent terms that place a drag on U.S. industry long
after patents on contemporaneous inventions have expired.

The NAM believes that, while our present term of 17 years from date of grant largely
meets the first two of these goals, it does not adequately meet the third. Thus, a 20-year
term measured from filing date is a distinct improvement. In most instances, a 20-year term
from filing will provide a slightly longer term of patent protection, based on an average U.S.
Patent and Trademark Office (PTO) pendency period of approximately 20 months. The
additional three years, together with the internal priority year, afford an inventor a 48-month
window within which to obtain a patent grant before a 20-year term from filing diminishes
the exclusivity period. An overwhelming majority of patentees will clearly benefit from this
change.

More importantly, establishing a 20-year term from filing would help prevent the
emergence of so-called "submarine patents," some of which have issued after 10 or 20 years
of pendency. Submarine patents arise because a few patent applicants deliberately prolong
the pendency of their applications to extend the date their patent will expire. This is done
through numerous filing of continuations, continuations-in-part or divisional patent
applications. While permitted under current law, these devices — when misused —
undermine the purpose and effectiveness of our patent system.

A continuation application, for example, simply continues the examination proceeding
in the PTO. There is no logical reason that a deliberately delayed patent should expire later
than one granted in a timely fashion. Continuation-in-part applications involve disclosure of
additional subject matter. If that matter is insignificant, there is no coherent reason that the
resulting patent should expire later than it otherwise would have. If the additional matter is
significant enough to be patentable over the original disclosure, a separate application can be
made and a separate patent obtained. This would encourage inventors to file applications on
important advances and discourage applications that add only minor differences. A divisional
application occurs where "two or more independent and distinct inventions are claimed in
one application" (35 USC 121). Such a situation is in the control of the applicant. There is,
therefore, no legitimate reason for the patent on one invention to expire later than the patent
for the other invention disclosed in the same application.

Often times foreign patents on the relevant technology have expired, leaving U.S.
firms unable to use the technology while overseas rivals are free to make use of it. While
submarine patents are relatively rare, their existence — and the possibility of their existence
— clearly puts U.S. manufacturers at a competitive disadvantage relative to foreign ones.
The NAM believes it is a misuse of the patent system to unnecessarily prolong patent
pendency in this manner. To remove the incentive for an inventor to delay patent grant (and
to provide an incentive for prompt filing and issuance), a patent term measured from filing
represents an ideal vehicle. In addition to the positive advantages of moving to a 20-year

332

term from filing, there are significant disadvantages for failure to change.

It is hard to see, for example, how the United States could meet its obligations under
the GATT if we did not amend §154 by moving to a 20-year term from filing. Article 33 of
the TRIPs text is quite clear: "The term of protection available shall not end before the
expiration of a period of twenty years counted from the filing date. " Further, the United
States agreed to implement a 20-year term from filing as part of the U.S. -Japan "Mutual
Understanding" of January 1994. In return the Japanese Patent Office agreed to permit
English-language filings and limited correction of translation errors. A second, more far-
reaching, mutual understanding is nearing conclusion.

To be blunt, the NAM believes that disrupting U.S. implementation of the Uruguay
Round provisions and killing the U.S. -Japan mutual understandings to preserve the ability of
a handful of patent applicants to manipulate the system to their narrow advantage is not good
public policy.

Other Provisions

Internal Priority and Provisional Application. The NAM strongly supports creation of a
provisional filing mechanism that enables applicants to establish priority without the costs and
complexities of a full-blown application. This should be accomplished in concert with an
internal priority right so that the provisional filing year is not counted against the term of the
patent. This comports with what is done in other countries and establishes a level playing
field for U.S. inventors.

We question, however, the relatively high cost ($150) for filing this provisional
application. The NAM believes that there should be no (or minimal) cost for a provisional
filing, since it requires no substantive action by the PTO. Recognizing the need for the
PTO, as a user-funded agency, to generate revenues to operate, the NAM instead urges the
Congress to appropriate to the PTO the full amount of fees it presently collects from PTO
users.

Patent Term Extension. The NAM supports the notion of patent term extension in
situations where the invention cannot be commercialized for one or more purposes because of
governmental regulation. We have not yet, however, developed a formal position on Section
8(b)(1) of the proposed legislation, regarding patent term extension for patents involved in
interference proceedings.

Conclusion

In spite of our concern with some of the particulars of the proposed TRIPs implementing
legislation, I want to close by reiterating the NAM's strong overall support for successful
implementation of the Uruguay Round's provisions. We have suggested changes that we
think would be an improvement over the current draft, but do not want to see these
suggestions become another cause for continued delay in moving forward. The NAM hopes
that consideration and passage of implementing legislation proceeds apace and that it will be
possible to accept the technical changes we have proposed.

333

Messrs. Chairmen, the NAM applauds the work of both subcommittees in addressing
not only the GATT TRIPs issues before us today, but also the entire range of intellectual
property issues. We want to continue to work with you to improve the U.S. patent system.

Thank you for the opportunity to present these comments. I will be happy to answer
any questions you may have.

334

Appendix

Changes Proposed to 35 USC 104 and 102(g). Deletions in existing

language are stricken, with new language redfine(^.

1 § 104. Invention made abroad

2 (a) In GD^^DRAL: In proceedings in the Patent and Trademark Office, in the

3 courts, and before any other competent authority, on applicant for a patent, or a patentee,

4 may not establish a date of invention by reference to knowledge or use thereof, or other

5 activity with respect thereto, in a foreign country other than a NAFTA country, except as

6 provided in sections 119 and 365 of this title. Where an invention was made by a person,

7 civil or military, while domiciled in the United States or a NAFTA country and serving in

8 any other country in connection with operations by or on behalf of the United States or a

9 NAFTA country, the person shall be entitled to the same rights of priority in the United

10 States with respect to such invention as if such invention had been made in the United States

1 1 or a NAFTA country. To the extent that any information in a NAFTA foreign country

12 concerning knowledge, use or other activity relevant to proving or disproving a date of

13 invention has not been made available for use in a proceeding in the Office, a court, or any

14 other competent authority to the same extent as such information could be made available in

15 the United States, the Commissioner, court, or such other authority shall draw appropriate

16 inferences, or take other action permitted by statute, rule, or regulation, in favor of ^e party

17 that requested the information in the proceeding.
18

19 (b) DErpHTiON: As used in this section, the term "NAFTA country" has the

20 moaning given that term in section 2(4) of the North American Free Trade Agreement

21 Implementation Act.
22

25 §102. Conditions for Patentability; novelty and loss of right to patent

27 A person shall be entitled to a patent up' jss—

30 (g) (1) aiiiring the coSiie W

31 291, a rival inventor Involved therein establishes that before ssich person's invention

32 thereof the invention was made by the rival inventor and not abandoned, suppressed, oi^

33 concealed. In determining priority of invention there shall be considered not only the

34 respective dates of conception and reduction to practice of the invention, but also the

35 reasonable diligence of one who was the first to conceive and last to reduce to practice^

36 from a time prior to conception by the other, or

37 (2> before the applicant's invention thereof the invention was made in this country by

38 another who had not abandoned, suppressed, or concealed, it. In determining priority of

39 invention there shall be considered not only the respective dates of conception and reduction

40 to practice of the invention, but also the reasonable diligence of one who was first to

41 conceive and last to reduce to practice, from a time prior to conception by the other.

335

Mr. Hughes. But why there? Well, thank you very much. In fact,
all the panelists have been very, very helpful to us.

Mr. Addison, you acknowledge there are abuses as Mr. Muir just
described within the present system?

Mr. Addison. Within the present system?

Mr. Hughes. Isn't that an abuse, what Mr. Muir just described?

Mr. Addison. I believe it is highly unusual. I loiow of no cir-
cumstance where this has occurred. This may be

Mr. Hughes. You heard the testimony of the present Commis-
sioner of Patents.

Mr. Addison. Did I hear his testimony?

Mr. Hughes. He testified that through continuations and con-
tinuations that 36 years is the term of exclusivity that one patent
had — 36 years under our present system.

Mr. Addison. It would seem that, under your present system,
that would not comply with the — with the requirements for exercis-
ing due diligence. If it were to take 36 years to prosecute a patent
application, I would think that the Patent Office itself would step
in and take hold of that patent and stop that.

Mr. Hughes. It is not the PTO that is abusing it. It is the patent
owner that is abusing it by filing continuance after continuance
under the present system.

Mr. Addison. I am not aware that the present system would
allow you to file continuations after continuations after continu-
ations.

Mr. Hughes. We have somebody that served as the Commis-
sioner of Patents and Trademarks at the table, Mr. Mossinghoff.

Mr. Addison. Could you respond?

Mr. Hughes. Are you familiar with the practice, Mr,
Mossinghoff?

Mr. Mossinghoff. I think the responsibility of the Office to re-
strict applications is very limited. At some point they may be able
to step in. In general, it is up to the applicants and their attorneys
who are coming in for examination. They pay the fee and the case
does linger.

Mr. Hughes. Are you aware of such abuses while you were Com-
missioner?

Mr. Mossinghoff. I was not. I was aware of the fact in line with
Mr. Muir's testimony that maybe there was an intention here to
delay that, but in some cases would, with protracted interferences
where the interferences go on, are subject to appeal, what you do
end up with is a breakthrough patent being put in on a very ma-
ture industry 20 years after that. And I do think that is a problem.

Mr. Hughes. Mr. Mossinghoff, there is still significant criticism,
you heard it today, from independent inventors and small busi-
nesses that the emphasis of the Patent and Trademark Office in
international negotiations and Office procedural changes are biased
in favor of large businesses.

Why do you think that the proposed patent law changes will ben-
efit independent inventors as well as small business from your ex-
perience?

Mr. Mossinghoff. Well, I think that it will add a bit more cer-
tainty than is there now. Small inventors aren't necessarily
nonmeritorious businessmen. I tend to think of small inventors as

336

having small businesses that exploit their inventions and they
don't want submarine patents anjrmore than anyone else. In fact,
I think submarine patents are probably more damaging to them, to
a small business, than they are to a large, multinational business.

I think, also, many of the research affiliates of the Pharma-
ceutical Research and Manufacturers of America are small bio-
technology companies. Clearly, the kind of money that their ven-
ture capitals are putting into those companies, they are looking
into world markets, albeit, they are small businesses now, but they
are really looking in our area to world markets, to Europe, the Pa-
cific Rim and Asia.

I think there is a balancing here. I think the Patent Office is
doing a good job in balancing the need to have access to the Patent
Office in other parts of the world and trading off some things here.
It is a balancing that I think they have done a very good job at.

Mr. Hughes. Ms. Nelsen, I agree with you. I don't think there
is any question that we need to provide adequate resources for
PTO. It is inexcusable that we have this difficulty in getting over
to PTO the user fees that we collect. And we are attempting to deal
with that.

Certainly training, providing the skills — particularly in the
biotech and other very complex areas — is extremely important and
I agree with you there. And we do need to simplify the system.
There is no question about it.

Do you think, however, that the establishment of a provisional
application filing for a nominal fee will alleviate some of the con-
cerns about efficient patent term and provide a sufficient time to
improve convention?

Ms. Nelsen. I think the provisional application is actually a
rather minor improvement. It could be an improvement because it
could allow universities to delay the expenditure for a year. But in
really cut-through, breakthrough technology, a year is simply not
long enough to perfect the technology.

The other problem we worry about with provisional applications
in this litigious society is whether we will simply get into the same
arguments we have with respect to priority, but now it will be with
respect to whether your provisional application was enabling. So
cautiously, we would probably end up spending just as much
money on a provisional application as we do on the — on the regular
specifications. So we don't see that as a big change.

On training — thank you very much. And the other thing I would
plead for on behalf of the Patent Office examiners is a career path
and a way of managing people that treats them as professionals,
rather than piece workers, so that you cannot only train highly in-
telligent, educated people, but you can motivate them to a career
in this field so that we will start to get experience and wisdom, not
just facts in their head.

Mr. Hughes. I quite agree. And there is a problem not just at
PTO, but that is a problem in government, trying to provide basi-
cally the incentives to attract very skilled people to government
service. That is a very difficult, difficult task, particularly at a time
when you are trying to downsize government.

Ms. Nelsen. Intriguingly, I think it is working conditions more
than salary when, with highly educated professionals

337

Mr. Hughes. It is a lot of things. You can have the best of work-
ing conditions. If you can't feed your family in a high-cost environ-
ment, you haven't done a thing. You also are concerned about the
need of university professors to publish and its impact on the filing
of patent claims.

Shouldn't that really be taken care of through the university sys-
tem, and not through the Patent Office?

Ms. Nelsen. It is taken care of by the university system. We put
in — in the major universities — we put publication ahead of patent
applications. We do not delay publications to file patents, since
sometimes we file them in 2 days.

However, there is — as technology transfer, as the Federal agen-
cies are putting more and more emphasis on the universities, work-
ing with industry and using in the property, you will start to see
this delay as a prudent thing to do, rather than in any way an un-
ethical one. And I think that would be a real pity.

Mr. Hughes. Mr. Addison, I think you described a patent, 4V2
years?

Mr. Addison. Yes, sir.

Mr. Hughes. You said it had only one moving part.

Mr. Addison. One moving part.

Mr. Hughes. I trust that moving part wasn't the PTO.

Mr. Addison. Was not the PTO.

Mr. Hughes. Does your association find any benefits on making
concessions in the U.S. patent law in order to obtain protection in
foreign countries?

Mr. Addison. Would you repeat that question?

Mr. Hughes. Yes. Do you think there is any benefit to making
concessions in the U.S. patent law, changing patent law in our
country, harmonization, you described it, in -^rder to obtain better
protection around the world?

Mr. Addison. No, sir, we do not.

Mr. Hughes. I see. OK. That is all.

Mr. Addison. We do not.

Mr. Hughes. That is honest. We just happen to disagree on that.

Mr. Muir, I don't have any questions of you because your testi-
mony was very straightforward and very helpful. Thank you.

I thank all the panelists. You have been very patient with us,
very helpful.

Gerry, I apologize

Mr. MossiNGHOFF. No problem.

Mr. Hughes [continuing]. For missing your very brief statement.
But believe me, I feel like a one-armed paper hanger today trying
to get a lot of things done. Anyway, thank you very much. You
have been helpful.

That concludes the testimony for today and the subcommittees
stand adjourned.

[Whereupon, at 2:45 p.m., the subcommittees adjourned.]

APPENDIXES

Appendix 1. — Statement of Hon. Howard L. Berman, a Rep-
resentative IN Congress From the State of California, Au-
gust 12, 1994

REMARKS OF REP. HOWARD L. BERMAN

JOINT HEARING ON LEGISLATION RELATING TO
GATT IMPLEMENTING LEGISLATION

AUGUST 12, 1994

Mr. Chairman: As you know from my correspondence to you, I

concur that the GATT/TRIPS agreement raises significant

intellectual property issues within the jurisdiction of this

Subcommittee .

You have assembled an impressive array of witnesses for
today's hearing. During the course of their testimony, I am
certain that the issues will be fully ventilated.

As to the copyright matters at stake, I want to convey to my
colleagues and to the Administration in the clearest possible
terms my very strong support for inclusion of retroactivity and
anti-bootlegging provisions in the GATT implementing legislation.

I am absolutely convinced that doing so is sound public
policy and in the best interest of a vital portion of the
nation's economy -- the copyright community.

In light of the rejection of U.S. efforts to extend GATT
protections to audio-visual goods, to the serious detriment of
our domestic industries, inclusion of retroactivity and anti-
bootleg provisions in the GATT implementing legislation is the
least we can do to improve the posture of our industries abroad.

(339)

340

Advances in opening up foreign markets to the export of
American intellectual property are of little avail if we fail to
take the steps available to us to protect that property from
piracy.

It is evident that the inclusion of these provisions in the
GATT implementing legislation is in the interests of the
recording and motion picture industries, centered in the part of
the country I am proud to represent.

But I am really making a larger point: when you consider
the enormous contribution of these industries to the U.S. balance
of trade, it is equally evident that including provisions in the
GATT legislation to increase the leverage available to the U.S.
to protect those industries is in the interest of the American
public as well.

That is the real test, and I have no doubt it is met.

Thank you.

341

Appendix 2. — ^Agreement on Trade-Related Aspects of Intel-
lectual Property Rights, Including Trade in Counterfeit
Goods, Submitted by Ira S. Shapiro, General Counsel, Of-
fice OF THE U.S. Trade Representative

trrti FA ii-Aic
Page 1

HCHlya.'-T OS TTUP5

AGREENfENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY
RIGHTS, rNCLUDING TRADE IN COUNTERfEFr GOODS

TABLE OF CONTLNTS

Part I: General Provisions and Basic Principles

Part II: Standards Concerning the Availabilit\-, Scope and Lse oi Intellectual Propert>- Rights

1. Cop) right and Related Rights

2. Trademarks

3 Geographical Indications

4. Industnal Designs

5. Patents

6. Layout-Desigi« (Topographies) of Integrated Circuits

7. Protection of Undisclosed Information

8. Control of Anti-Competitive Practices in Contractual Licences

Part III: Enforcement of Intellectual Property Rights

1. General Obligations

2. Civil and Administrative Procedures and Remedies

3. Provisional Measures

4. Special Requirements Related to Border Measures

5. Criminal Procedures

Part rV: Acquisition and Maintenance of Intellechjal Property Rights and Related Inter-Partes

Procedures

Part V: [>ispute Prevention and Settlement

Part VI- Transitional Arrangements

Part Vll; Institutional Arrangements, Final Provisions

342

KTN/FA II-AIC
Page 2

♦CHi^XL-NT ON TVn

AGREEMENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY
RIGHTS, INCLUDING TRADE IN COL^TERfEIT GOODS

Members,

Desiring to reduce distortions juid impediments to international trade, emd taking into account
the need to promote effective and adequate protection of infeUectual property rights, and to ensure that
measures and procedures to enforce intellectual propert)' rights do not themselves become barriers to
legitimate trade;

Reccpiizing. to this end, the need for new rules and disciplines concerning:

(a) the applicability of the basic principles of the GATT 1994 and of relevant
international intellectual property agreements or conventions;

(b) the provision of adequate standards and principles concerning the availability, scope
and use of traderelated intellectual property rights;

(c) the provision of effective and appropriate mearxs for the er\forcement of trade-related
intellectual property rights, taking into account differences in national legal systems;

(d) the provision of effective and expeditious procedures for the multilateral prevention
and settlement of disputes between governments; and

(e) transitional arrangements aiming at the fullest participation in the results of the
negotiatioru;

Recognizing the need for a multilateral framev/ork of principles, rules and disciplines dealing
with international trade in counterfeit goods;

Recognizing that intellectual property rights are private rights;

Recognizing the underlying public p'olicy objectives of national systems for the protection of
intellectual property, including developmental and technological objectives;

Recognizing also the special needs of the least-develof>ed country Members in respect of
maximum flexibility in the domestic implementation of laws and regulatiotu in order to enable them to
create a sound and viable technological base;

Emphasizing the importance of reducing tensions by reaching strengthened commitments to

resol'. e i.?putes or, traic-relitei j^.tellectual rropert\ issues through TiultUjteral proceiures:

Desiring to establish a mutually supportive relationship between the MTO and the World
Intellectual Property Organization (WIPO) as well as other relevant international organisations;

Hereby agree as follows:

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PART I: CENTRAL PROVISIONS AND BASIC PRINCIPLES

Arttcle J
Sjture ar.J Scope of Obligjt:cns

1. Members shall give effect to the provisions of this Agreement. Members may, but shall not be
obliged to, implement in their domestic law more extensive protection than is required bv this
.Agreement, provided that such protection does not contravene the provisions of this Agreement.
Members shall be free to determine the appropriate method of implementing the provisions of this
Agreement within their own legal system and practice.

2. For the purposes of this .Agreement, the term "inteUectual property" refers to all categories of
intellectual property- that are the subject of Sections 1 to 7 of Part D.

3. Members shall accord the treatment provided for in this Agreement to the nationals of other
Members.^ In respect of the relevant inteUectual property right, the nationals of other Members shall
be understood as those natural or legal persons that would meet the criteria for eligibility for
protection provided for in the Paris Convention (1967), the Berne Convention (1971), the Rome
Convention and the Treaty on Intellectual Property in Respect of Integrated Circuits, were all Members
of the MTO members of those conventions.^ Any Member availing itself of the possibilities provided in
paragraph 3 of Article 5 or paragraph 2 of Article 6 of the Rome Convention shall make a notification
as foreseen in those provisions to the Council for Trade-Related Aspects of Intellectual Property Rights.

Article 2
Intellectual Property Conventions

1 . In respect of Parts II, III and IV of this Agreement, Members shall comply with Articles 1-12
and 19 of the Paris Convention (1967).

2. Nothing in Parts I to IV of this Agreement shall derogate from existing obligations that
Members may have to each other under the Paris Convention, the Berne Convention, the Rome
Convention and the Treaty on InteUectual Property in Respect of Integrated Circuits.

Article 3
National Treatment

^V^Tien "nationals" are referred to in this Agreement, they shall be deemed, in the case of a separate
customs territory Member of the MTO, to mean persons, natural or legal, who are domiciled or who have
a real and effective industrial or commercial establishment in that customs territory.
2ln this Agreement, "Paris Convention" refers to the Paris Convention for the Protection of Industrial
Property; "Paris Convention (1967)" refers to the Stockholm Act of this Convention of 14 July 1967.
"Berne Convention" refers to the Beme Convention for the Protection of Literary and Artistic Works;
Berne Convention (1971) refers to the Paris Act of this Convenbon of 24 July 1971. 'Rome Convention"
refers to the International Convention for the Protection of Performers, Producers of Phonograms and
Broadcasting Organisatioru, adopted at Rome on 26 October 1961. Treaty on Intellectual Property in
Respect of Integrated Circuits" (IPIC Treaty) refers to the Treaty on InteUectual Property in Respect of
Integrated Circuits, adopted at Washington on 26 May 1989.

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1. Each Member shall accord to the nationals of other Members treatment no less favourable than
that It accords to its own nabonals with regard to the protection^ of intellectual property, subject to the
excert'.ons already provided m, respectively, the Pans Convenhon (19671, the Berne Convention (1971),
the Re me Convention and the Treaty on InteLiectual Property in Respect of Integrated Circuits. In
respect of performers, producers of phonograms and broadcasting organizations, this obligation only
applies in respect of the rights provided under this Agreement. Any Member availing itself of the
possibilities provided in Article 6 of the Beme Convention and paragraph 1(b) of Article 16 of the
Rome Convention shall make a notification as foreseen in these provisions to the Council for Trade-
Related Aspects of Intellectual Property Rights.

2. Members may avail themselves of the exceptions permitted under paragraph 1 above in
relation to judicial and admmistrative procedures, including the designation of an address for service or
the appomtment of an agent within the jurisdiction of a Member, only where such exceptions are
necessary to secure compliance with laws and regulations which are not inconsistent with the
provisions of this Agreement and where such practices are not applied in a manner which would
constitute a disguised restriction on trade.

Article 4
Most-Favoured-Nation Treatmeril

With regard to the protection of intellectual property, any advantage, favour, privilege or
immunity granted by a Member to the nationals of any other country shall be accorded immediately and
unconditionally to the nationals of all other Members. Exempted from this obligation are any
advantage, favour, privilege or in\inunity accorded by a Member

(a) deriving from international agreements on judicial assistance and law enforcement of a
genereJ nature and not particularly confined to the protection of intellectual property;

(b) granted in accordance with the provisions of the Beme Convention (1971) or the Rome
Convention authorizing that the treatment accorded be a function not of national
treatment but of the treatment accorded in another country;

(c) in respect of the rights of performers, producers of phonograms and broadcasting
orgamizations not provided under this Agreement;

(d) deriving from international agreements related to the protection of intellectual
property which entered into force prior to the entry into force of the Agreement
Establishing the MTO, provided that such agreements are notified to the Council for
Trade-Related Aspects of Intellectual Property Rights and do not constitute an

arbifrarv or unjustifiable discrimination against nationals of other Members.

Article 5

Multilatval Agreements on Acquisition or

MainlenarKe of Protection

^For the purposes of Articles 3 and 4 of this Agreement, protection shaU include matters affecting the
availability, acquisition, scope, maintenance and enforcement of intellectuad property rights as well as
those matters aifecting the use of intellectual property rights specifically addressed in this
Agreement

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The obligations under Articles 3 and 4 above do not apply to procedures provided in
multilateral agreements concluded under the auspices of the World IntellectuaJ Property Organization
rela'ung to the acquisition or maintenance of intellectual property rights

Article 6
Exhaustion

For the purposes of dispute settlement under this Agreement, subject to the provisions of
Articles 3 and 4 above nothing in this Agreement shall be used to address the issue of the e Jiaustion of
intellectual property rights.

Article 7
Objeclives

The protection and enforcement of intellectual property rights should contribute to the
promotion of technological innovation and to the transfer and dissemination of technology, to the
mutual advantage of producers and users of technological knowledge and in a manner conducive to social
cknd economic welfare, and to a balance of rights and obligations.

Article 8
Principles

1 . Members may, in formulating or amending their national laws and regulations, adopt measures
necessary to protect public health and nutrition, and to promote the public interest in sectors of vital
importance to their socio-economic and technological development, provided that such measures are
consistent with the provisions of this Agreement.

2. Appropriate measures, provided that they are consistent with the provisions of this
Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the
resort to practices which unreasonably restrain trade or adversely affect the intematiorial transfer of
technology.

PART II: STANDARDS CONCERNING THE AVAILABILITY, SCOPE
AND USE OF INT1ELLECTUAL PROPERTy RIGHTS

SECTION 1: COPYRIGHT AND RELATED RIGHTS

Article 9
Relation to Berne Conxxntion

1. Members shall comply with Articles 1-21 and the Appendix of the Beme Convention (1971).
However, Members shall not have rights or obligations under this Agreement in r«pect of the rights
conferred under Article 6bis of that Convention or of the rights derived therefrom.

2. Copyright protection shall extend to expressions and not to ideas, procedures, methods of
operation or mathematical concepts as such.

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Arlicle 10
Computer Programs and Compilations of Data

1 Computer programs, whether in source or object code, shall be protected as Lterarv 'Aor ks under

the Berne Convention (19"1)-

2. Compilatior« of data or other material, whether in machine readable or other form, which by

reason of the selection or arrangement of their contents constitute intellectual creations shall be
protected as such. Such protection, which shall not extend to the data or material itself, shall be
without prejudice to any copyright subsisting in the data or matenal itself.

Article 11
Rental Rights

In respect of at least computer programs and cinematographic works, a Member shall provide
authors and their successors in title the right to authorize or to prohibit the commercial rental to the
public of originals or copies of their copyright works. A Member shall be excepted from this obligation
in respect of cinematographic works unless such rental has led to widespread copying of such works
which is materially impairing the exclusive right of reproduction conferred in that Member on authors
and their successors in title. In respect of computer programs, this obligation does not apply to rentals
where the program itself is not the essential object of the rental.

ArticU n
Term of Protection

Whenever the term of protection of a work, other than a photographic work or a work of
applied art, is calculated on a basis other than the life of a natural person, such term shall be no less
than fifty years from the end of the calendar year of authorized publication, or, failing such
authorised publication within fifty years from the making of the work, fifty years from the end of the
calendar year of making.

Arlicle 13
Limitations and Exceptions

Members shall confine limitatioru or exceptioiu to exclusive rights to certain special cases
which do not conflict with a normal exploitation of the work and do not ui\reasonably prejudice the
legitimate interests of the right holder.

Article 24

Protection of Performers. Producers of Phonograms

(Sound Recordings) and Broadcasting Organizations

1. In respect of a fixation of their performance on a phonogram, performers shall have the

possibilitv of preventing the following acts when undertaken without their authorization: the
fixation of their unfixed performance and the reproduction of such fixation. Performers shall also have
the possibility of preventing the following acts when undertaken without their authorization: the
broadcasting by wireless means and the communication to the public of their live performance.

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2. Producers of phonograms shall enjoy the nght to authorize or prohibit the direct or indirect

reproduction of their phonograms.

3 Broadcasting organizations shall ha\e the right to prohibit the following acts when

undertaken without their authorization: the fixation, the reproduction of fixations, and the
rebroadcasting by wireless means of broadcasts, as well as the cotnmunication to the public of television
broadcasts of the same. Where Members do not grant such nghts to broadcasting organizations, they
shall provide owners of copynght in the subject matter of broadcasts with the possibility of preventing
the above acts, subject to the provisions of the Berne Convenbon (1971).

4. The provisions of Article 11 in respect of computer programs shall apply mutatis mutandis to
producers of phonograms and any other nght holders ir phonograms as determined m domestic law. If,
on the date of the Mmisterial Meetmg concludmg the Uruguay Round of Multilateral Trade
Negotiations, a Member has in force a system of equitable remuneration of right holders m respect of
the rental of phonograms, it may mamtam such system provided that the commercial rental of
phonograms is not giving rise to the material impairment of the exclusive rights of reproduction of
right holders.

5. The term of the protection available under this Agreement to performers and producers of
phonograms shall last at least until the end of a period of fifty years computed from the end of the
calendar year in which the fixation was made or the performance took place. The term of protection
granted pursuant to paragraph 3 above shall last for at least twenty years from the end of the calendar
year in which the broadcast took place.

6. Any Member may, in relation to the rights conferred under paragraphs 1-3 above, provide for
conditions, limitations, exceptions and reservations to the extent permitted by the Rome Convention.
However, the provisioi>s of Article 18 of the Berne Convention (1971) shall also apply,
mutatis mutandis, to the rights of performers emd producers of phonograms in phonograms.

SECnONi TRADEMARKS

Article 15
Protectable Subject Matter

1. Any sign, or any combination of signs, capable of distinguishing the goods or services of one
undertaking from those of other undertakings, shall be capable of constituting a trademark. Such signs,
in particular words including personal names, letters, numerals, figurative elements and combinatior\s of
colours as well as any combination of such signs, shall be eligible for registration as trademarks. Where
signs are not inherently capable of distinguishing the relevant goods or services. Members may make
registrability depend on distinctiveness acquired through use. Members may require, as a condition of
registration, that signs be visuall> percerttf.e

2. Paragraph 1 above shall not be understood to prevent a Member from denying registration of a
trademark on other grounds, provided that they do not derogate from the provisioiu of the Paris
Convention (1967).

3. Members may make registrability depend on use. However, actual use of a trademark shall not
be a condition for filing an application (or registration. An application shall not be refused solely on
the ground that intended use has not taken place before the expiry of a period of three years from the
date of application.

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4. The nature of the goods or services to which a trademark is to be appUed shall m no case form

an obstacle to registration of the trademark.

' . ^^^"'^rVn'\r^J"^ "'^ trademark e.ther before it .s registered or promptlv atter .. .s
registered and shall afford a reasonable opportunity for pet.fons to cancel the reg.strat.on I^
addition. Members may afford an opportunity- for the registration of a trademark to be opposed.

Article 16
Rights Conferred

1 . The owner of a registered trademark shall have the exclusive right (o prevent all thud parties

not havmg his consent from using in the course of trade identical or similar signs for goods or services
which are identical or similar to those m respect of which the trademark is registered where such u^
would result in a livelihood of conhision^ In case of the use of an identical sign for identical goods or
services, a likelihood of conhision shall be presumed. The nghts descnbed above shaU not prejudice
any existmg pnor rights, nor shaU they affect the possibility of Members making rights available on
the basis of use. " " ='^<'<ji^ un

2 Article ebis of the Paris Convention (1967) shall apply, mutatis mutandis, to services In

determmmg whether a trademark is well-known, account shaU be taken of the knowledge of the
trademark in the relevant sector of the public, including knowledge in that Member obtained <^ a result
of the promotion of the trademark. ^^^^

3. Article 6bis of the Paris ConvenHon (1967) shaU apply, mutatis mutandis, to goods or services

which are not similar to those in respect of which a trademark is registered, provided that use of that
trademark in relation to those goods or services would indicate a connection between those eoods or
services and the owner of the registered trademark and provided that the interests of the owner of the
registered trademark are likely to be damaged by such use.

Article 17
Exceptions

Members may provide limited exceptions to the rights con/erred by a trademark, such as fair
use of descnptive temis, provided that such exceptions take account of the legitimate interests of the
owner of the trademark and of third parties.

Article 18

Term of Protection

Initial registration, and each renewal of registration, of a trademark shall be for a term of no
less than seven years. The registration of a trademark shaU be renewable indefinitely.

Article 19
Requirement of Use

1. If use is required to maintain a registration, the registration may be canceUed only after an

Scirfo T °' 'V""' ^1 ^'"! "' "°"-"^' "^^ ^^J^** ^^'^ based on the eisf^ice^f
obstacles to such use are shown by the trademark owner. Circumstances arising independently of the

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Will of the owner of the trademark which coostitute an obstacle to the use of the trademark, such as
import restrictions on or other government requirements for goods or services protected by the
traJemark. shall be recognized as valid reai-ons for non-use

2 VNTien subject to the control of its owner, use of a trademark by another person shall be

recognized as use of the trademark for the purpose of mamtairung the registration.

Article 20
Other Requirements

The use of a trademark in the course of trade shall not be unjustifiablv encumbered bv special
requirements, such as use with another trademark, use m a special form or use in a manner detrimental
to Its capabilitv to distinguish the goods or services of one undertaking from those of other
undertakings. This will not preclude a requirement prescribing the use of the trademark identifying the
undertaking producing the goods or services along with, but without Imking it to, the trademark
distinguishing the specific goods or services in question of that undertaking.

Article 21
Licensing and Assignment

Members may determine conditions on the licensing and assignment of trademarks, it being
understood that the compulsory licensing of trademarks shall not be permitted and that the owner of a
registered trademark shall have the right to assign his trademark with or without the traiwfer of the
business to which the trademark belongs.

SECTION 3: GEOGRAPHICAL INDICATIONS

Article 22
Protection of Geographical Indications

1. Geographical indications are, for the purposes of this Agreement, indications which identify a
good as originating in the territory of a Member, or a region or locality in that territory, where a given
quality, reputation or other characteristic of the good is essentially attributable to its geographical
origin.

2. In respect of geographical indicatior\s. Members shall provide the legal meaits for interested
parties to prevent:

i.ai the use of any rr.eans l- the dejigr.ation or rre.-entation o: a good that indicates or

suggests that the good in question originates m a geographical area other than the true
place of origin in a manner which misleads the public as to the geographical origin of
the good;

(b) any use which constitutes an act of unfair competition within the meaning of

Article lObis of the Pans Convention (1967).

3. A Member shall, ex officio if its legislation so permits or at the request of an interested party,
refuse or invaUdate the registration of a trademark which contains or consists of a geographical
indication with respect to goods not originating in the territory indicated, if use of the indication in the

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trademark for such goods in that Member is of such a nature as to mislead the public as to the true place
of ongin.

4. ■ The provisions of the preceding paragraphs of this Article shall applv to a geographical
indication which, although literally true as to the territory, region or localitv in which the goods
originate, faJsely represents to the pubLc that the goods onguiate in another territory

Article 23

Additior.j! Protection for Cecg'-JT'r:cal Indications

for Wines and Spirits

1. Each Me-ber shall provide the legal means for interested parties to prevent use of a
geographical indication identifying wines for wines not originating in the place indicated bv the
geographical indication m question or identifying spirits for spirits not originating in the place
mdicated by the geographical indication in question, even where the true origin of the goods is
indicated or the geographical indicahon is used in translation or accompanied by expressions such as
"kind", "type", "style", "imitation" or the like.^

2. The registration of a trademark for wines which contains or coiuists of a geographical
indication identifying wines or for spirits which contains or consists of a geographical indication
identifying spirits shall be refused or invalidated, ex officio if domestic legislation so permits or at the
request of an interested party, with respect to such wines or spirits not having this origixv

3. In the case of homonymous geographical indications for wines, protection shall be accorded to
each indication, subject to the provisions of paragraph 4 of Article 22 above. Each Member shall
determine the practical conditioi\s under which the homonymous indications in question will be
differentiated from each other, taking into account the need to ensure equitable treatment of the
producers concerned jmd that consumers are not misled.

4. In order to facilitate the protection of geographical indications for wines, negotiations shall be
undertaken in the Council for Trade-Related Aspects of Intellectual Property Rights concerning the
establishment of a multilateral system of notification and registration of geographical indications for
wines eligible for protection in those Members participating in the system.

Article 24
International Negotiations: Exceptions

1. Members agree to enter into negotiations aimed at increasing the protection of individual
geographical indications under Article 23. The provisions of paragraphs 4-8 below shall not be used by

a Member to ref-jse to conduct negotiations or to conclude bilateral or multilateral agreements. In the
coniext 01 suoh regotiations, Me.-r<r:i ihiW be willu-.g ;o cc-iid^.- the continued apphcab;l:;% of these
provisions to individual geographical indicabor\s whose use was the subject of such negotiations.

2. The Council for Trade-Related Aspects of Intellectual Property Rights shall keep under review
the application of the provisioi\s of this Section; the first such review shall take place within two
years of the entry into force of the Agreement Establishing the MTO. Any matter affecting the
compliance with the obligations under these provisions may be drawn to the attention of the Council,
which, at the request of a Member, shall consult with any Member or Members in respect of such matter

^Notwithstanding the first sentence of Article 42, Members may, with respect to these obligations,
instead provide for enforcement by administrative action.

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in respect of which it has not been possible to find a satisfactory solution through bilateral or
plurilateral consultations between the Members concerned. The Council shall take such action as may
be agreed to facilitate the operation and further the objectives of this Section.

3 In implementing this Section, a Member shall not diminish the protection of geographical

indications that existed in that Member immediately prior to the date of entry into force of the
Agreement Establishing the MTO.

4. Nothing m this Section shall require a Member to prevent contmued and similar use of a
particular geographical indication of another Member identifying wines or spirits in connection with
goods or services by any of its nationals or domiciLanes who have used that geographical indication in
a continuous manner with regard to the sarre or related goods or services in the temtory of that Member
either (a) for at least fen years preceding the date of the Ministerial Meeting concluding the L'ruguav
Round of Multilateral Trade Negotiations or (b) in good futh preceding that date

5. Where a trademark has been applied for or registered in good faith, or where rights to a
trademark have been acquired through use in gCKxl f«iith either:

(a) before the date of appLcation of these provisioris in that Member as defined in Part VI
below; or

(b) before the geographical indication is protected in its country of origin;

measures adopted to implement this Section shall not prejudice eligibility for or the validity of the
registration of a trademark, or the right to use a trademark, on the basis that such a trademark is
identical with, or similar to, a geographical indicatiorv

6. Nothing in this Section shall require a Member to apply its provisiorw in respect of a
geographical indicarion of any other Member with respect to goods or services for which the relevant
indication is identical with the term customary in common language as the common name for such goods
or services in the territory of that Member. Nothing in this Section shall require a Member to apply its
provisions in respect of a geographical indication of any other Member with respect to products of the
vine for which the relevant indication is identical with the customary name of a grape variety existing
in the territory of that Member as of the date of entry into force of the Agreement Establishing the
MTO.

7. A Member may provide that any request made under this Section in connection with the use or
registration of a trademark must be presented within five years after the adverse use of the protected
indication has become generally known in that Member or after the date of registration of the
trademark in that Member provided that the trademark has been published by that date, if such date
is earlier than the date on which the adverse use became generally known in that Member, provided
that u-.e geographical indication u not usci or registered .n bad :>;th

8. The provisions of this Section shall in no way prejudice the right of any person to use, in the
course of trade, his name or the name of his predecessor in business, except where such name is used in
such a manner as to mislead the public.

9. There shall be no obligation under this Agreement to protect geographical indications which
are not or cease to be protected m their country of origin, or which have fallen mto disuse m that
country.

SECTION 4: INDUSTRIAL DESIGNS

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Article 25
Renu.reTtents for P'ctf:::cr

1. Members shall provide for the protection of independently created industrial designs that are
new or original. Members may provide that designs are not new or original if they do not significantly
differ from known designs or combinabons of known design features. Members may provide that such
protection shall not extend to designs dictated essentially by technical or functional considerations.

2. Each Member shall ensure that requirements for securing protection for textile designs, in
particular in regard to any cost, examination or publication, do not unreasonably impair the opportunit\'
to seek and obtain such protection. Members shall be free to meet this obligation through industrial
design law or through copvTight law.

Article 26
Protection

1. The owner of a protected industrial design shall have the right to prevent third parties not
having his consent from making, selling or importing articles bearing or embodying a design which is a
copy, or substantially a copy, of the protected design, when such acts are undertaken for commercial
purposes.

2. Members may provide limited exceptions to the protection of industrial designs, provided that
such exceptions do not unreasonably conflict with the normal exploitation of protected industrial
designs and do not unreasonably prejudice the legitimate interests of the owner of the protected design,
taking account of the legitimate interests of third parties.

3. The duration of protection available shall amount to at least ten years.

SECTIONS: PATENTS

i4rfic;e 27
Patentable Subject Matter

1. Subject to the provisions of paragraphs 2 and 3 below, patents shaU be available for any
inventions, whether products or processes, in all fields of technology, provided that they are new,
involve an inventive step and are capable of industrial application.^ Subject to paragraph 4 of
Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and
patent rights eniovable without discrimination as to the place of invention, the field of technology and
uhethcr produjt^ are imported or locaii;. produced

2. Members may exclude from patentability inventions, the prevention within their territory of
the commercial exploitation of which is necessary to protect ordre public or morality, including to
protect human, animal or plant life or health or to avoid serious prejudice to the environment, provided
that such exclusion is not made merely because the exploitation is prohibited by domestic law.

3. Members may also exclude from patentability:

^For the purposes of this Article, the terms "inventive step" and "capable of industrial application"
may be deemed by a Member to be synonymous with the terms "non-obvious" and "useful" respectively.

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(a) diagnostic, therapeutic and surgical methods for Lhe treatment of humans or animals.

(hi plants and animaLs other thir microorganisms, ari essentialK biological processes for

the production of plants or animals other than non-biologica! and microbiological
processes. However, Members shall provide for the protection of plant vanefies either
bv patents or bv an effective sui generis system or by any combination thereof The
provisions of this sub-paraeraph shall be reviewed four years after the entT\ into force
of the Agreement EstabUshuig the NfTO

ArtuU 28
R:;^hts Conferred

\. A patent shall confer on its owner the following exclusive r.ghts:

(a) where the subject matter of a patent is a product, to prevent third parties not having
his consent from the acts of; making, using, offering for sale, selling, or importing' for
these purposes that product;

(b) where the subject matter of a patent is a process, to prevent third parties not having his
consent from the act of using the process, and from the acts of: using, offering for sale,
selling, or importing for these purposes at least the product obtained directly by that
process.

2. Patent owners shall also have the right to assign, or traiufer by succession, the patent and to

conclude licensing contracts.

ArhcU 29
Cor^ditions on Patent Applicants

1. Members shall require that an applicant for a patent shall disclose the invention in a manner
sufficiently clear and complete for the invention to be carried out by a person skilled in the art and may
require the applicant to indicate the best mode for carrying out the invention known to the inventor at
the filing date or, where priority is claimed, at the priority date of the application.

2. Members may require an applicant for a patent to provide information concerning his
corresponding foreign applications and grants.

A-::::; 30
Exceptions to Rights Conferred

Members may provide limited exceptions to the exclusive rights conferred by a patent,
provided Lhat such exceptions do not unreasonably conflict with a normal exploitation of the patent
and do not unreasonably prejudice the legitimate interests of the patent owner, tsiking account of the
legitimate interests of third parties

^This right, like all other rights conferred under this Agreement in respect of the use, sale, importation
or other distribution of goods, is subject to the provisions of Article 6 above.

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Arddf 31
Other U<e Without Aut'ijnz^i'.ion of the RiJ*!.' Holder

VNliere the law of a Member allows for other use^ of the subject matter of a patent without the
authorization of the right holder, including use by the government or third parties authorized by the
government, the following provisions shall be respected:

(a) authorization of such use shall be considered on its individual merits;

(b) such use may only be permitted if, prior to such use, the proposed user has made efforts
to obtam authorization from the right holder on reasonable commercial terms and
condibons and that such efforts have not been successful within a reasonable penod of
time This requirement may be waned by a Ntember m the case of a national emergencv
or other circumstances of extreme urgency or in cases of public non<ommercial use. In

— situatior\s of national emergency or other circumstances of extreme urgency, the right

holder shall, nevertheless, be notified as soon as reasonably practicable. In the case of
public non-commercial use, where the government or contractor, without making a
patent search, knows or has demonstrable grounds to know that a valid patent is or will
be used by or for the government, the right holder shall be informed promptly;

(c) the scope and duration of such use shall be limited to the purpose for which it was
authorized, and in the case of semi-conductor technology shall only be for public non-
commercial use or to remedy a practice determined after judicial or admiiustrative
process to be jmti-competitive.

(d) such use shall be non-exclusive;

(e) such use shall be non-assignable, except with that part of the enterprise or goodwill
which enjoys such use;

(f) any such use shall be authorized predominantly for the supply of the domestic market
of the Member authorizing such use;

(g) authorization for such use shall be liable, subject to adequate protecHon of the
legitimate interests of the persons so authorized, to be terminated if and when the
circumstances which led to it cease to exist and are unlikely to recur. The competent
authority shall have the authonty to review, upon motivated request, the continued
existence of these circumstances;

(hi the right holder shall be paid adequate remuneration in the circumstances of each case,

;ak-,ig L't.-i ac^oont the econc~.:; ^^i-e o: tr; i_'.!" . :.^i:.or.

(i) the legal validity of any decision relating to the authorization of such use shall be

subject to judicial review or other independent review by a distinct higher authority in
that Member;

(j) ai\y decision relating to the remuneration provided in respect of such use shall be subject

to judicial review or other independent review by a distmct higher authority in that
Member;

^ "Other use" refers to use other than that allowed under Article 30.

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(k) Members are not obliged to apply the conditions set forth in sub-paragraphs (b) and (0
above where such use is permitted to remedy a prajr-.ce determined after judicial or
administrative process to be anti-competitive. The need to correct anti-corr re;i;:\e
practices may be taken into account in determining the amount of remur.eration in such
cases. Competent authorities shall have the autrority to refuse termination of
authorization if and when the conditions which led to such authoruation are liJcely to
recur;

(I) where such use is authorized to permit the exploitation of a patent ("the second

patent") which cannot be exploited without mfri.-.ging another patent ("the first
patent'), the following additional conditions shall apply:

(i) the invention claimed in the second pa-.ent shall involve an important

technical advance of considerable economic significance in relation to the
invention claimed in the first patent;

(ii) the owner of the first patent shall be enritled to a cross-licence on reasonable
terms to use the invention claimed in the second patent; and

(iii) the use authorized in respect of the first patent shall be non-assignable except
with the assignment of the second patent

Article 32
Revocation/Forfeiture

An opportimity for judicial review of any decision to revoke or forfeit a patent shall be
available.

Article 33
Term of Protection

The term of protection available shall not end before the expiration of a f)eriod of twenty years
counted from the filing date.'

Article 34
Process Patents: Burden of Proof

1 For the purposes of civil proceedings in respect of the infringement of the rights of the owner

re'crreJ to m paragraph Ubi ol .Article 2S abo\e. i: ;he s--b c;t ~z::e: cl a pater.: :? a p.-.-:ef5 for
obtainmg a product, the judicial authorities shall have the authority to order the defendant to prove
that the process to obtain an identical product is different from the patented process. Therefore,
Members shall provide, in at least one of the following circumstances, that any identical product when
produced without the consent of the patent owner shall, in the absence of proof to the contrary, be
deemed to have been obtained by the patented process:

( a ) if the product obtained by the patented process is new;

^It is understood that those Members which do not have a system of original grant may provide that
the term of protection shall be computed from the filing date in the system of original grant.

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(b) if there is a substanhal likelihood that the idenbcal product was made by the process
and the owner of the patent has been urable through, reasonable efforts to determine
the process actually used

2. Any Member shall be free to provide that the burden of proof indicated in paragraph 1 shall be
on the alleged infringer oi\ly if the condition referred to in sub-paragraph (a) is fulfilled or otUy if the
condition referred to m sub-paragraph (b) is fulfilled.

3. In the adduction of proof to the contrary, the legitimate interests of the defendant in protecting
his manufacturing and business secrets shall be taken into account.

SECTION 6: L\YOUT-DESIGNS (TOPCXiR-XPHIES) OF 1NTEGR.^TED CIRCLTTS

Article 35
Relation to IPIC Treaty

Members agree to provide protection to the layout-designs (topographies) of integrated circuits
(hereinafter referred to as "layout-designs") in accordance with Articles 2-7 (other than paragraph 3
of Article 6), Article 12 and paragraph 3 of Article 16 of the Treaty on Intellectual Property in Respect
of Integrated Circuits and, in addition, to comply with the foUow-ing provisions.

Article 36
Scope of the Protection

Subject to the provisions of paragraph 1 of Article 37 below. Members shall consider unlawful
the following acts if performed without the authorization of the right holder^ importing, selling, or
otherwise distributing for commercial purposes a protected layout-design, an integrated circuit in
which a protected layout-design is incorporated, or an article incorporating such an integrated circuit
only insofar as it continues to contain an imlawfully reproduced layout-design.

Article 37
Acts not Requiring the Authorization of the Right Holder

1 . Notwithstanding Article 36 above, no Member shall consider unlawful the performance of any

of the acts referred to in that Article in respect of an integrated circuit incorporating an unlawfully
reproduced layout-design or any article incorporating such an integrated circuit where the person
performing or ordering such acts did not know and had no reasonable eround to know, when acquiring the
LT.teg.-atevJ circuit o: article Lncorporating such an Ln!egri:ei c;rr-it -..-^t .t incorporated ar, ..-liw tully
reproduced layout-design. Members shall provide that, after the time that such person has received
sufficient notice that the layout-design was unlawfully reproduced, he may perform any of the acts
with respect to the stock on hand or ordered before such time, but shall be liable to pay to the right
holder a sum equivalent to a reasonable royalty such as would be payable under a freely negotiated
Ucence in respect of such a layout-design.

^The term "right holder' in this Section shall be understood as having the same meaning as the term
"holder of the righf in the IPIC Treaty.

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2. The conditions set out in sub-paragraphs (a)-(k) of Article 31 above shall appiv mutatis

mutandis In the event of any non-voluntary licensing of a layout-design or of its use bv or for the
government without the authorization of the right holder.

Article 38
Term of Protection

1. In Members requiring registration as a condition of protection, the term of protection of lavout-
designs shall not end before the expiration of a period of ten years counted from the date of filing an
application for registration or from the first commercial exploitation wherever in the world it occurs.

2. In Members not requiring registration as a condition for protection, layout-designs shall be
protected for a term of no less than ten years from the date of the first commercial ex}.iloitation
wherever in the world it occurs.

3. Notwithstanding paragraphs 1 and 2 above, a Member may provide that protection shall lapse
fifteen years after the creation of the layout-design.

SECTION 7: PROTECTION OF UNDISCLOSED INFORMATION

Article 39

1. In the course of ensuring effective protection against unfair competition as provided in Article
lObis of the Paris Convention (1967), Members shall protect undisclosed iixformation in accordance with
paragraph 2 below and data submitted to govenunents or goven\mental agencies in accordartce with
paragraph 3 below.

2. Natural and legal persons shall have the possibility of preventing information lawfully
within their control from being disclosed to, acquired by, or used by others without their consent in a
manner contrary to honest commercial practices^ so long as such informatics:

is secret in the sense that it is not, as a body or in the precise configuration and assembly of its
components, generally known among or readily accessible to persons within the circles that
normally deal with the kind of information in question;

has commercial value because it is secret; and

has been subject to reasonable steps imder the circumstances, by the person lawfully in control of

the information, to keep it secret.

3. Members, when requiring, as a condition of approving the marketing of pharmaceutical or of
agricultural chemical products which utilize new chemical entities, the submission of undisclosed test
or other data, the origination of which involves a considerable effort, shall protect such data against
unfair commercial use. In addition. Members shall protect such data agairut disclosure, except where

^For the purpose of this provisiorv "a maru«r contrary to honest commercial practices" shall mean at
least practices such as breach of contract, breach of contidertce and inducement to breach, and includes
the acquisition of undisclosed ii\formation by third parties who knew, or were grossly negligent in
failing to know, that such practices were involved in the acquisition.

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necessarv to protect the public, or unless steps are taken to ensure that the data are protected against
unfair commercial use.

SECTION 8 CONTROL OF ANn-COMPETTTP.'E PR.\CT1CES

IN contr-AlCtual licences

Article 40

1. Members agree that some licensing practices or conditions pertaining to inteliectuai propert\-
rights which restrain competition may have ad\'erse effects on trade and may impede the transfer and
dissemination of technology.

2. Nothing in this Agreement shall prevent Members from specifying in their national legislation
licensing practices or conditions that may in parhculax cases constitute an abuse of intellectual property
rights havmg an adverse effect on competition in the relevant market. As provided above, a Member
may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent
or control such practices, which may include for example exclusive grantback conditions, conditions
preventing challenges to validity and coercive package licei\sing, in the light of the relevant laws and
regulations of that Member.

3. Each Member shall enter, upon request, into consultatioru with any other Member which has
cause to believe that an intellectual property right owner that is a national or dooiiciliary of the
Member to which the request for coruultations has been addressed is undertaking practices in violation
of the requesting Member's laws and regulations on the subject matter of this Section, and which wishes
to secure compliaiKe with such legislation, without prejudice to any action under the law and to the full
freedom of an ultimate decision of either Member. The Member addressed shall accord full and
sympathetic cor\sideration to, and shall afford adequate opportuiuty for, consultations with the
requesting Member, and shall co-operate through supply of publicly available non<onfidential
information of relevance to the matter in question and of other ii^ormation available to the Member,
subject to domestic law and to the conclusion of mutually satisfactory agreements concerning the
safeguarding of its confidentiality by the requesting Member.

4. A Member whose nationals or domiciliaries are subject to proceedings in another Member
concerning alleged violation of that other Member's laws and regulatiotu on the subject matter of this
Section shall, upon request, be granted an opportunity for consultations by the other Member under the
same conditions as those foreseen in paragraph 3 above.

PART ID: ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS

SECTION 1: GENERAL OBLIGATIONS

Article 41

1. Members shall erxsure that enforcement procedures as specified in this Part are available under

their national laws so as to permit effective action against any act of infringement of intellectual
property rights covered by this Agreement, including expeditious remedies to prevent infringements and
remedies which constitute a deterrent to further infringements. These procedures shall be applied in
such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards
against their abuse.

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2. Procedures concerning the enforcement of infellectvial property rights shall be fair and
equitable They shall not be unnecessarily compbcated or costly, or entail unreasonable tune-lunits or
unwarranted delays.

3. Decisions on the merits of a case shall preferably be in writing and reasoned. They shall be
made available at least to the parties to the proceeding without undue delay. Decisions on the ments
of a case shall be based only on evidence in respect of which parties were offered the opportunity to be

heard

4. Parties to a proceeding shall have an opportunity for review by a judicial authority of final
administrative decisions and, subject to jurisdictional provisions in national laws concerning the
importance of a case, of at least the legal aspects of initial judicial decisions on the merits of a case.
However, there shall be no obLgation to provide an opportunity for review of acquittals in criminal
cases.

5. It is understood that this Part does not create any obligation to put in place a judicial system for
the enforcement of intellectual property rights distinct from that for the enforcement of laws in general,
nor does it affect the capacity of Members to enforce their laws in general. Nothing in this Part creates
any obligation with respect to the distribution of resources as between eriforcement of inteUectual
property rights and the enforcement of laws in general.

SECTION 2: CIVIL AND ADMINISTRATIVE PROCEDURES AND REMEDIES

Article 42
Fair and Equitable Procedures

Members shall make available to right holders^ civil judicial procedures concerning the
enforcement of any intellectual property right covered by this Agreement Defendants shaU have the
right to written notice which is timely and contains sufficient detail, including the basis of the claims.
Parties shall be allowed to be represented by independent legal counsel, and procedures shall r\ot
impose overly burdensome requirements concerning mandatory personal appearances. All parties to
such procedures shall be duly entitled to substantiate their claims and to present all relevant evidence.
The procedure shall provide a means to identify and protect cor\fidential information, unless this would
be contrary to existing constitutional requirements.

Article 43
Evidence of Proof

1. The judicial authorities shall have the authority, where a party has presented reasonably
available evidence sufticient to supper: its claims ar.i has specified evidence relevant to
substantiation of its claims which lies in the control of the opposing party, to order that this evidence
be produced by the opposing party, subject in appropriate cases to conditions which ensure the
protection of confidential ir\formation.

2. In cases in which a party to a proceeding voluntarily and without good reason refuses access to,
or otherwise does not provide necessary information within a reasonable period, or significantly
impedes a procedure relating to ii\ enforcement action, a Member may accord judicial authorities the

^For the purpose of this Part, the term "right holder" includes federations and assodatioiu having
legal standing to assert such rights.

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authoritv to make preliminary aind final determinations, affirmative or negative, on the basis of the
information presented to them, including the complaint or the allegation presented by the partv
adverselv affected bv the denial of access to information, sub|ect to providing the parties an
opporturutv to be heard on the allegations or evidence.

Article 44

Injunctions

1. The judicial authorities shall have the authority to order a party to desist from an
infringement, infer alta to prevent the entrv' into the channels of commerce m their jurisdiction of
imported goods that involve the infringement of an intellectual property right, immediatelv after
customs clearance of such goods. Members are not obliged to accord such authority in respect of protected
subject matter acquired or ordered by a person prior to knowing or having reasonable grounds to know
that deahng in such subject matter would entail the infringement of an intellectual property nght.

2. Notwithstcmding the other provisions of this Part and provided that the provisions of Part II
specifically addressing use by governments, or by third parties authorized by a government, without
the authorization of the right holder are complied with. Members may limit the remedies available
against such use to payment of remuneration in accordeu\ce with sub-paragraph (h) of Article 31 above.
In other cases, the remedies under this Part shall apply or, where these remedies are inconsistent with
national law, declaratory judgments aj\d adequate compensation shall be available.

Article 45
Damages

1. The judicial authorities shall have the authority to order the infringer to pay the right holder
damages adequate to comperwate for the injury the right holder has suffered because of an infringement
of his intellectual property right by an infringer who knew or had reasonable grounds to know that he
was engaged in infringing activity.

2. The judicial authorities shall also have the authority to order the ti\fringer to pay the right
holder expet«es, which may include appropriate attorney's fees. In appropriate cases. Members may
authorize the judicial authorities to order recovery of profits and/or payment of pre-established
damages even where the infringer did not know or had no reasonable grounds to know that he was
engaged in infringing activity.

Article 46

Other Remedies

In order to create an effective deterrent to infrmgement, the judicial authorities shall have the
authority to order that goods that they have found to be infringing be, without compensation of any
sort, disposed of outside the channels of commerce in such a manner as to avoid any harm caused to the
right holder, or, unless this would be contrary to existing coi>stitutional requirements, destroyed. The
judicial authorities shall also have the authority to order that materials and implements the
predomin^mt use of which has been in the creation of the infringing goods be, without compensation of
anv sort, disposed of outside the channels of commerce in such a manner as to minimize the risks of
further infringements. In cor«idering such requests, the need for proportionality between the seriousness
of the infringement and the remedies ordered as well as the interests of third parties shall be taken
into account. In regard to counterfeit trademark goods, the simple removal of the trademark unlawfully

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affixed shall not be sufficient, other than in exceptional cases, to permit release of the goods into the
channels of commerce.

Article 47
Right of Information

Members may provide that the judicial authorities shall have the authority, unless this
would be out of proportion to the senousness of the infringement, to order the infringer to infonn the
right holder of the identity of third persons involved in the production and distribution of the
infringing goods or services ^md of their channels of distribution.

Article 48
IndemnificJtion of the Defendant

1. The judicial authorities shall have the authority to order a party at whose request measures
were taken and who has abused enforcement procedures to provide to a party wrongfully enjoined or
restrained adequate compensation for the injury suffered because of such abuse. The judicial authorities
shall also have the authority to order the applicant to pay the defendant expenses, which may
include appropriate attorney's fees.

2. In respect of the administration of any law pertairung to the protection or enforcement of
inteUectual property rights. Members shall only exempt both pubUc authorities and officials from
liability to appropriate remedial measures where actions are taken or intended in good faith in the
course of the administration of such laws.

Article 49
Adminislrativt Procedures

To the extent that any civil remedy can be ordered as a result of admiiustrative procedures on
the merits of a case, such procedures shaU conform to principles equivalent in substance to those set
forth in this Section.

SECTION 3: PROVISIONAL MEASURES
Article 50

1. The judicial authorities shaU have the authority to order prompt and effective provisional

measures:

(a) to prevent an infringement of any intellectual property right from occurring, and m
particular to prevent the entry into the channeb of commerce in their jurisdiction of
goods, including imported goods immediately after customs clearance;

(b) to preserve relevant evidence in regard to the alleged infringement.

2. The judicial authorities shall have the authority to adopt provisional measures inaudita
altera parte where appropriate, in particular where any delay is likely to cause irreparable harm to
the right holder, or where there is a demonstrable risk of evidence being destroyed.

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3 The judicial authorities shall have the authority to require the applicant to provide any

reasonably available evidence in order to satisfy themselves with a sufficient degree of certaint\ that
the applicant is the right holder and that his right is being infringed or that such infrineement is
imminent, and to order the applicant to pro\ ide a secunty or equivalent assurance sufficient to pr.-;ect
the defendant and to prevent abuse.

4. Where provisional measures have been adopted inaudita altera parte, the parties affected
shall be given notice, without delay after the execution of the measures at the latest. A review,
including a right to be heard, shall take place upon request of the defendant with a view to deciding,
within a reasonable period after the notification of the measures, whether these measures shall be
modified, revoked or confirmed.

5. The applicant may be required to supply other information necessary for the identcication of
'the goods concerned bv the authonty that will execute the provisional measures.

6. Without prejudice to paragraph 4 above, provisional measures taken on the basis of
paragraphs 1 and 2 above shall, upon request by the defendant, be revoked or otherwise cease to have
effect, if proceedings leading to a decision on the merits of the case are not initiated within a
reasonable period, to be determined by the judicial authority ordering the measures where national
law so permits or, in the absence of such a determination, not to exceed twenty working days or thirty-
one calendar days, whichever is the longer.

7. Where the provisional measures are revoked or where they lapse due to any act or ooussion by
the applicant, or where it is subsequently found that there has been no infringement or threat of
infringement of an intellectual property right, the judicial authorities shall have the authority to
order the applicant, upon request of the defendant, to provide the defendant appropriate compensation
for any injury caused by these measures.

8. To the extent that any provisional measure can be ordered as a result of administrative
procedures, such procedures shall conform to principles equivalent in substance to those set forth in this
Section.

SECTION 4. SPECIAL REQUIREMENTS RELATED TO BORDER MEASURES^

Article 51
Suspension of Release by Customs Authorities

Members shall, in confomuty with the provisions set out below, adopt procedures^ to enable a
right holder, who has valid grounds for suspecting that the importation of counterfeit trademark or
pirated copyright goods^ may take place, to lodge an application in writing with competent

^Where a Member has dismantled substantially all controls over movement of goods across its border
with another Member with which it forms part of a customs union, it shall not be required to apply the
provisiorw of this Section at that border.

^It is understood that there shall be no obligation to apply such procedures to imports of goods put on
the market in another country by or with the consent of the right holder, or to goods in transit.
^For the purposes of this Agreement:

counterfeit trademark goods shall mean any goods, including packaging, bearing
without authorization a trademark which is identical to the trademark validly
registered in respect of such goods, or which caiwot be distinguished in its essential

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authorities, admiriistrative or judicial, for the suspension by the customs authorities of the release into
free circulation of such goods. Members may enable such an application to be made in respect of goods
which involve other mfnngements of intellectual property richts. provided that the requi.'ements of
this Section are met. Members may a'^io pro\ ide for correspor^ir C procedures cor..errung the .--:-.per_-.on
bv the customs authorities of the release of mfringmg goods destined for exportation from their
territories.

Article 52
Application

Anv right holder initiating the procedures under Arr.cle 51 above shall be required to pro\ ide
adequate evidence to satisfy the competent authorities that, under the laws of the country of
importation, there is pn ma facie an infringement of his intellectual property right and ;o supplv a
sufficiently detailed description of the goods to make them readily recognizable by the customs
authorities. The competent authorities shall inform the applicant within a reasonable period
whether they have accepted the application and, where determined by the competent authorities, the
period for which the customs authoribes will take action.

Article S3
Security or Equivalent Assurance

1. The competent authorities shall have the authority to require an applicant to provide a
security or equivalent assurance sufficient to protect the defendant and the competent authorities and to
prevent abuse. Such security or equivalent assurance shall not unreeisonably deter recourse to these
procedures.

2. Where pursuant to an application under this Section the relecise of goods involving industrial
designs, patents, layout-designs or undisclosed information into free circulation has been suspended by
customs authorities on the basis of a decision other than by a judicial or other independent authority,
and the period provided for in Article 55 has expired without the granting of provisional relief by the
duly empowered authority, and provided that all other conditions for importation have been complied
with, the owner, importer, or consignee of such goods shall be entitled to their release on the posting of
a security in an amount sufficient to protect the right holder for any infringement. Payment of such
security shall not prejudice any other remedy available to the right holder, it being understood that
the security shall be released if the right holder fails to pursue his right of action within a reasonable
period of time.

Article S4

S::i:e c^ Susrers-r

aspects from such a trademark, and which thereby infringes the rights of the owner of
the trademark in question under the law of the country of importation;

pirated copyright goods shall mean any goods which are copies made without the
consent of the right holder or person duly authorized by him in the country of
production and which are made directly or indirectly from an article where the malcing
of that copy would have constituted an infringement of a copyright or a related right
under the law of the country of importation.

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The importer ar\d the applicant shall be promptly notified of the suspension of the release of
goods according to Article 51 above.

Article 55
Dui-j.'u-n of Suspension

If, within a period not exceeding ten u orkmg days after the applicant has been served notice of
the suspension, the customs auth.onties ha\ e not been mformed that proceedings leading to a decision on
the merits of the case have been initiated by a party other than the defendant, or that the duly
empowered authoritv- has taken provisional measures prolonging the suspension of the release of the
Goods the goods shall be released, provided that all other conditions for importation or exportation
have been complied with, m appropriate cases, this time-lunit may be extended by another ten
working davs If proceedings 'eading to a decision on the merits of the case ha\e been initiated, a
review, includmg a right to be heard, shall taXe place upon request of the defendant with a view to
deciding, within a reasonable penod, whether these measures shall be modified, revoked or confirmed.
Notwithstanding the above, where the suspension of the release of goods is carried out or continued in
accordance with a provisional judicial measure, the provisions of Article 50, paragraph 6 above shall
apply.

Article 56
Indemnification of the Importer
and of the Oumer of the Goods

Relevant authorities shall have the authority to order the applicant to pay the importer, the
consignee and the owner of the goods appropriate compensation for any injury caused to them through
the wrongful detention of goods or throu^ the detention of goods released pursuant to Article 55 above.

i4rtic/e 57
Right of Inspection and Information

Without prejudice to the protection of confidential information, Members shall provide the
competent authorities the authority to give the right holder sufficient opportuiuty to have any product
detained by the customs authorities inspected in order to substantiate his claims. The competent
authorities shall also have authonty to give the importer an equivalent opportunity to have any such
product inspected. Where a positive determination has been made on the merits of a case. Members
may provide the competent authorities the authority to inform the right holder of the names and
addresses of the consignor, the importer and the consignee and of the quantity of the goods in question.

Article 58
Ex Officio Action

Where Members require competent authorities to act upon their own initiative and to suspend
the release of goods in respect of which they have acquired prima facie evidence that an intellectual
property right is being infringed:

(a) the competent authorities may at any time seek from the right holder any information
that may assist them to exercise these powers;

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(b) the importer and the nghl holder shall be promptly notified of the suspension. Where
the importer has lodged an appeal against the suspension with the competent
authorities, the suspension shall be subject to the conditions, mutatis mutan^-.i. set out
at Article 55 above;

(c) Members shall only exempt both public authorities ^md officials from liability to
appropriate remedial measures where actior\s are taken or intended in good fajth.

Article 59
RiTiedies

Without prejudice to other rights of action open to the right holder and subject to th.e right of
the defendant to seek review by a judicial authority, compe^c.it authorities shall have the authoritv
to order the destruction or disposal of infrmging goods in accordance with the prmciples set out m
Article 46 above. In regard to counterfeit trademark goods, the authorities shall not allow the re-
exportation of the Liinnging goods in an unaltered state or subject them to a different customs procedure,
other than in exceptional circumstances.

Article 60
De Minimis Imports

Members may exclude from the application of the above provisions small quantities of goods of
a non-connmercial nattire cont<uned in travellers' personal luggage or sent in small consignments.

SECTIONS: CRIMINAL PROCEDURES

Article 61

Members shall provide for criminal procedures and penalties to be applied at least in cases of
wilful trademark counterfeiting or copyright piracy on a commercial scale. Remedies available shall
include imprisonment and/or monetary fines sufficient to provide a deterrent, consistently with the
level of penalties applied for crimes of a corresponding gravity. In appropriate cases, remedies
available shall also include the seizure, forfeiture and destruction of the infringing goods and of any
materials and implements the predominant use of which has been in the commission of the offence.
Members may provide for crimin«d procedures and penalties to be applied in other cases of infringement
of intellectual property rights, in particular where they are coounitted wilfully and on a commercial
scale.

PART IV; ACQUISITION AND MAINTENANCE OF INTELLECTUAL PROPERTY
RIGHTS AND RELATED DMTER-PARTES PROCEDURES

Article 62

1. Members may require, as a condition of the acquisition or maintenance of the intellectual

property rights provided for under Sections 2-6 of Part U of this Agreement, compliance with
reasonable procedures and formalities. Such procedures and formalities shall be consistent with the
provisions of this Agreement.

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2 VMiere the acquisition of an mtellectual property tight is subject to the right being granted or

registered. Members shall ensure that the procedures for grant or registration, subject to compliance
with the substantive conditions for acquisihon of the nght. pernvit the granting or registration of the
rieht within a reasonable period of time so as to a\oid unwarranted curtailment of the period of
protection.

3. Article 4 of the Paris Convention (1967) shall apply mutatis mutandis to service marks.

4 Procedures concerning the acquisition or maintenance of intellectual property nghts and, where

the national law provides for such procedures, administrative revocation and inter partes procedures
such as opposition, revocation and cancellation, shall be governed by the general principles set out in
paragraphs 1 and 3 of .Article 41.

5. Final administrative decisions in any of the procedures referred to under paragraph 4 above

shall be subject to review by a judicial or quasi-judicial authority. However, there shall be no
obligation to provide an opportunity for such review of decisions in cases of ur\successful opf>osition or
administrative revocation, provided that the grounds for such procedures can be the subject of
invalidation procedures.

PARTY; DISPUTE PREVENTION AND SETTLEMENT

Article 63
Transparency

1. Laws and regulations, and final judicial decisions and administrative rulings of general
application, made effective by any Member pertaixung to the subject matter of this Agreement (the
availability, scope, acquisition, enforcement and prevention of the abuse of intellectual property
rights) shall be published, or where such publication is not practicable made publicly available, in a
national Icinguage, in such a manner as to enable governments and right holders to become acquainted
with them. Agreements concerning the subject matter of this Agreement which are in force between the
government or a governmental agency of any Member and the government or a governmental agency of
any other Member shall also be published.

2. Members shall notify the laws and regulations referred to in paragraph 1 above to the Council
for Trade-Related Aspects of Intellectual Property Rights in order to assist that Council in its review of
the operation of this Agreement. The Council shall attempt to minimize the burden on Members in
carrying out this obligation and may decide to waive the obligation to notify such laws and regulaboiu
directly to the Council if consultations with the World Intellectual Property Organization on the
establishment of a common register containing these laws and regulations are successful. The Council
y-n'.. a'.-C' consider m thi> co.Trectior i- ■ acticr reju;.-'ri recJ.'-'.ng not;:;cations pursuant to the
obligations under this Agreement stemmmg from the pro\ isions of Article 6ter of the Paris Convention
(1967)

3. Each Member shall be prepared to supply, in response to a written request from another
Member, information of the sort referred to in paragraph 1 above. A Member, having reason to believe
that a specific judicial decision or administrative ruling or bilateral agreement in the area of
intellectual property rights affects its rights under this Agreement, may also request in writing to be
given access to or be informed in sufficient detail of such specific judicial decisions or admiiustrative
rulings or bilateral agreements.

367

kt;. .-a :i-aic

Page 2-

4. Nothing in paragraphs 1 to 3 above shall require Members to disclose confidential L-Jortnation

which would impede law enforcement or otherwise be contran- to the public interest or would prejudice
the legitimate commercial interests of particular enterprises. pubLc or pnvate

Article 64
Dispute Settlement

1. The provisions of Articles XXII and XXIH of the General Agreement on Tariffs and Trade 1994
as elaborated and applied by the Understanding on Rules and Procedures Governing the SettJement of
Disputes shall apply to consultations and the settlement of disputes under this Agreemen; except as
otherwise specifically provided herein.

2 Sub-paragraphs .XXIIIlfb) and XXIII 1(c) of the General Agreement on Tariffs and Trade 1994

shall not apply to the settlement of disputes under this Agreement for a penod of five vears from the
entry into force of the Agreement establishing the Multilateral Trade Organization.

3. During the tune period referred to in paragraph 2, the TRIPS Council shall examine the scope

and modalities for Article XXin:l(b) and Article XXIII:l(c)-typ€ complaints made pursuant to this
Agreement, and submit its recommendations to the Ministerial Conference for approval. Anv decision of
the Ministerial Conference to approve such recommendations or to extend the period in paragraph 2
shall be made only by conseruus, and approved recommendations shall be effective for all Members
without further formal acceptance process.

PART VI: TRANSITIONAL ARRANGEMENTS

Article 65
Transitiotul Arrangements

1 Subject to the provisions of paragraphs 2, 3 and 4 below, no Member shall be obliged to apply

the provisions of this Agreement before the expiry of a general period of one year following the date of
entry into force of the Agreement Establishing the MTO.

2. Any developing country Member is entitled to delay for a further period of four years the date
of application, as defined in paragraph 1 above, of the provisions of this Agreement other than
ArHcles 3, 4 and 5 of Part I.

3. Any other Member which is in the process of transformation from a centrally-planned into a
market, free-enterprise economy and which is undertaking structural reform of its intellectual property
system and facing special problems in the preparation and implementation of intellectual property
laws, may also benefit from a period of delay as foreseen in paragraph 2 above.

4. To the extent that a developmg country Member is obliged by this Agreement to extt-.j product
patent protection to areas of technology not so protectable in its territory on the general date of
application of this Agreement for that Member, as defined in paragraph 2 above, it may delay the
applicahon of the provisions on product patents of Section 5 of Part n of this Agreement to such areas of
technology for an additional period of five years.

5. Any Member availmg itself of a transitional period under paragraphs 1, 2, 3 or 4 above shall
ensure that any changes in its domesbc laws, regulations and practice made during that penod do not
result in a lesser degree of consistency with the provisions of this Agreement

368

tnv TK II-MC
Page 29

«C»££MZ>TOS TTUPS

Article 66
Least-Developed Country Members

1 Ln view ot their spec;al needs and rec-_i:ements. their economic, tinancul and adrr._-,i>trative

constraints, and their need for flexibility to create a viable technological base, least-de\ eloped country
Members shalJ not be required to apply the provisions of this Agreement, other than .■\rticles 3. 4 and 5,
for a penod of 10 years from the date of appUcahon as defined under paragraph 1 of Article 65 above.
The Council shall, upon duly motivated request by a least-developed country Member, accord extensions
of this period

2. De\eloped country Members shall provide incentives to enterprises and mshtutions m their

territories for the purpose of promoting and encouraging technology transfer to least-developed country
Members in order to enable ihem to create a sound and viable technological base.

Article 67
Technical Cooperation

In order to facilitate the implementation of this Agreement, developed country Members shall
provide, on request and on mutually agreed terms and conditions, technical and financial cooperatior, in
favour of developing and least-developed country Members. Such cooperation shall include assistance
in the preparation of domestic legislation on the protection and enforcement of inteUectual property
rights as well as on the prevention of their abuse, and shall include support regarding the
establishment or reinforcement of domestic offices and agencies relevant to these matters, including the
training of personnel.

PART VD: INSTITUTIONAL ARRANGEMENTS; FINAL PROVISIONS

Article 68

Council for Trade-Related Aspects of

Intellectual Property Rights

The Council for Trade-Related Aspects of Intellectual Property Rights shall monitor the
operation of this Agreement and, in particular. Members' compliance with their obligations hereunder,
and shall afford Members the opportunity of consulting on matters relating to the trade-related aspects
of intellectual property rights. It shall carry out such other responsibilities as assigned to it by the
Members, and it shall, in particular, provide any assistance requested by them in the context of dispute
settlement procedures. In caxrying out its functions, the Council may consult with and seek information
from any source it deems appropriate. In consultation with the World Intellectual Property
Cr; ir.itJticn. the Council shall seek to estirl.jh. within orf \ear of its first meetirc arpropnate
arrangements for cooperation with bodies of that Organization.

Article 69
International Cooperation

Members agree to cooperate with each other with a view to eliminating international trade in
goods infringing intellectual property rights. For this purpose, they shall establish and notify contact
points in their national administrations and be ready to exchange information on trade in infringing
goods. They shall, in particular, promote the exchange of information and cooperation between customs
authonties with regard to trade in counterfeit trademark goods and pirated copyright goods.

369

>rN rA ::-a:c

Psje 29
toit£CME.vr oo rvn

Ar'.-.y.f 70
Protection .-•■ Ex:i::r.£ SuhtV.' \Utter

1. This Agreement does not give rise to obbgahons in respect of acts which occurred before the
date of appUcation of the Agreement for the Nfember in question.

2. Except as othenAise provided for in this Agreement, this Agreement gives rise to objgations in
respect of all subject matter existing at the date of application of this Agreement for the Member in
question, and which is protected in that Member on the said date, or which meets or comes subsequentlv
to meet the criteria for protection under the terms of this Agreement. In respect of this paragraph and
paragraphs 3 and 4 below, copyright obligations with respect to existing works shai; be solely
determmed under Article IS of the Berne Ccr.\ent:on (1971), and obligations with respect to the rights
of producers of phonograms and performers in existing phonograms shall be determmed solelv under
Article 18 of the Berne Convention (1971) as made applicable under paragraph 6 of Article 14 of this
Agreement.

3. There shall be no obligation to restore protection to subject matter which on the date of
application of this Agreement for the Member in question has fallen into the public domain.

4. In respect of any acts in respect of specific objects embodying protected subject matter which
become infringing under the terms of legislation in conformity with this Agreement, and which were
commenced, or in respect of which a significant investment was made, before the date of acceptance of
the Agreement Establishing the NfTO by that Member, any Member may provide for a limitation of the
remedies available to the right holder as to the continued performance of such acts after the date of
application of the Agreement for that Member. In such cases the Member shall, however, at least
provide for the payment of equitable remuneration.

5. A Member is not obliged to apply the provisions of Article 11 aj d of paragraph 4 of Article 14
with respect to originals or copies purchased prior to the date of applicarton of this Agreement for that
Member.

6. Members shall not be required to apply Article 31, or the requirement in paragraph 1 of
Article 27 that patent rights shall be enjoyable without discrimination as to the field of technology, to
use without the authorization of the right holder where authorization for such use was granted by the
government before the date this Agreement became known.

7. In the case of intellectual property rights for which protection is conditional upon registration,
applications for protection which are pending on the date of application of this Agreement for the
Member in question shall be permitted to be amended to claim any enhanced protection provided under

•j-e pro: ■j-K-T.i of thif .Agret.— ent Such isr.er Im-'j- shall ."o; .-elude r.e.v rrarter

8. Where a Member does not make available as of the date of entry into force of the Agreement
Establishing the MTO patent protection for pharmaceutical and agricultural chemical products
commensurate with its obligatioru under Article 27, that Member shall;

( i ) notwithstanding the provisiof\s of Part VI above, provide as from the date of entry into
force of the Agreement Establishmg the MTO a means by which applications for
patents for such inventions can be filed;

(ii) apply to these applications, as of the date of application of this Agreement, the
criteria for patentability as laid down in this Agreement as if those criteria were being

370

KTN/FA II-AIC
Page 30

>•: *£EME>~ OS Twn

applied on the date of filing in that Member or, where priority is available and
claimed, the priority date of the appbcation;

(ill) provide paterit protection in •:cordar.ce with this Agreerr.ent as trom the grant o( the
patent and for the remainder of the patent term, counted from the filing date in
accordance with Article 33 of this Agreement, for those of these applications that meet
the criteria for protection referred to in sub-paragraph (ii) above.

9. V\'here a product is the subject of a patent application m a .Member in accordance with

paragraph 8(i) above, ej^clusive marketing nghts shall be granted, notv\ithstanding the provisions of
Part VI above, for a period of five years after obtaining market approval in that Member or until a
product patent is granted or rejected m that Me.Tiber, whiche\e.- period is shorter, provided that,
subsequent to the entry into force of the Agreement Establishing the MTO, a patent appLcation has
been filed and a patent granted for that product in another Member and marketing approval obtained in
such other Member.

Article 71
Review and Amendment

1. The Council for Trade-Related Aspects of Intellectual Property Rights shall review the
implementation of this Agreement after the expiration of the transitional period referred to in
paragraph 2 of Article 65 above. The Council shall, having regard to the experience gained in its
implementation, review it two years after that date, and at identical intervals thereafter. The
Council may also undertake reviews in the light of any relevant new developments which might
warrant modification or amendment of this Agreement

2. Amendments merely serving the purpose of adjusting to higher levels of protection of
intellectual property rights achieved, and in force, in other multilateral agreements and accepted
under those agreements by all Members of the MTO may be referred to the Mirusterial Conference for
action in accordance with Article X, paragraph 6, of the Agreement Establishing the MTO on the basis
of a consensus proposal from the CouiKil for Trade-Related Aspects of Intellectual Property Rights.

Article 72
Reservations

Reservations may not be entered in respect of any of the provisions of this Agreement without
the consent of the other Members.

Article 73
Security Exceptions

Nothing in this Agreement shall be construed;

(a) to require any Member to furnish any information the disclosure of which it considers
contrary to its essential security interests, or

-(b) to prevent any Member from taking any action which it considers necessary for the
protection of its essential security interests;

371

tfTN-FA II-XIC

ACUEMENT ON -«:n

(i) relating to fissionable materials or the matenals from which thev are derived;

(ii) relating to the traffic in arms, ammunition and imp'.ements of war ar.d to such
traffic in other goods and materials as is carried en .lirectiv or mdirectlv for
the purpose of supplying a military estabhshment.

(iii) taken in time of war or other emergency in international relations; or

United Nations Charter for the maintenance of international peace and security.

372

Appendix 3. — Statement in Opposition to Patent Law Changes
IN THE GATT Enabling Legislation (With Attachments), Sub-
mitted BY Media Alert, August 11, 1994

MEDIA ALERT CONTACT: Sheila L. Summers

202-363-5443

Nip Litzsinger
703-971-3699

OPPOSITION TO patent LAW CHANGES
IN the GATT ENABLING LEGISLATION

JOINT HOUSE AND SENATE HEARING
OF THE COMMITTEE ON THE JUDICIARY

AUGUST 11, 1994

THE ATTACHED AGREEMENT DATED JANUARY 20, 1994 RELATES TO THE
TESTIMONY GIVEN BY KENNEITH F. ADDISON, JR., PTE. REPRESENTING THE
ORGANIZED INVENTIVE COMMUNITY-MEMBERS OF THE NATIONAL
INVENTORS HALL OF FAME, MEMBERS OF THE AMERICAN COLLEGE OF
PHYSICIAN INVENTORS, AND INDEPENDENT INVENTORS, AND THE UNITED
INVENTORS ASSOCL\TION.

"It took six years for the U.S. delegation to negotiate the minimum verbiage in the GAIT
language, yet provisions relative to intellectual prpperty were made mandatory by a stroke
or the pen of an Administration appointee," said Mr. Addison.

AS MENTIONED BY MR. ADDISON THE ENABUNG LEGISLATION EXCEEDS
THE REQUIREMENTS FOR GATT AND MORE CLOSELY PARALLELS THE
ATTACHED AGREEMENT MADE BY BRUCE A. LEHMAN, ASSISTANT,
SECRETARY OF COMMERCE AND COMMISSIONER OF PATENTS AND
TRADEMARKS, UNITED STATES PATENT AND TRADEMARK OFFICE.

373

^^^ 3M GATT LANGUAGE

(j) uiy decision relating to the remunerjiion provided In respect of juch use shall be subject
to Judicial review or other Independent review by a distinct higher auUiority in ihit
Member;

(k) Mcmbcn are not obliged to apply the conditions jct forth In mbparagraplw (h) and (0
where such use it permllted to remedy i practice determined after Judicial or
admlnlslraiive process to be antlHCompetltlve. Tljc need to correct anti-compctitlve
practices may be taken into account In detennining tlie amount of remuneration in such
cases. Competent autJiorities shall have the audiority to refuse termination of
authorization if and when tJje conditions which led to such authorization are likely to
recur;

(I) where such use la authorlied to permit the exploitation of a patent ("the second patent")
which cannot be exploited without infringing another parent ("tijc fir^t patent"), the
following additional coodidona shall apply:

(I) the Invention claimed in the second patent shaJlinvolve an Important icchnJcai
advance of considerable economic significance in relation to the invemion
claimed In the first patent;

(II) the owner of the first patent shall be entitled to a cross-licence on reasonable
terms to use the lavention claimed in the second patent, and

(ill) the use authorized In respect of the first paunt shall be non-aasignable except
with the assignment of the second patent.

Article 32
Revocation/Forfeiture
An opportunity for Judicial review of any decision to revoke or forfeit a patent shall be available.

Artide $3

Term ofProuaion

The term of protection available shall not end before the expiration of a period of twenty years
counted from the filing date.'

'Ii Ituodertloodihtt ihott Memberi which do not hart S lyHeraoreritina] iranloiajr providt Out the lermofpraieciloo
shall b« coR^Mitod turn the fUlni data id the tyittm of oriiinal graM.

374

January 20, 1»94

ifntoal VndcrataitdiDs

bstvsen

tha Japaneaa Pacant Office

attd

the United Stataa Pat«nt and Tradaaark Office

Actloaa to bo takon by Japan:

1. By July 1, 1995, tha Japanese Patent Office (JPG) will
perait foreign nationals to file patent applications in the
tntlish language, with a translation into Japanese to follow
within two Booths.

2. Prior to tha grant of a patent, the JPO will peroit the
correction of translation errors up to the time allowed for the
reply to the first substantive covaunication from the JPO.

3. After the grant of a patent, the JPO will permit the
correction of translation errora to the extsnt that the
correction does not substantially extend the scope of protection.

4. Appropriate fees may be charged by the JPO for the above
procedures .

Actloaa to be takon by the O.S.t

1. By June 1, 1994, the United States Patent and Tradeaark
Office (USPTO) will introduce leglalation to aoend U.S. patent
Isu to chtnge the tera of patents froa 17 years from the date of
grant of a patent for an invention to 20 years froa the date of
filing of the flrat complete application.

2. The legislation that the USPTO will introduce shall take
effect six months from the date of enactment and shall apply to
all appllcatlona filed In the United States thereafter.

3. Paragraph 2 requires that the term of all continuing
applications (continuations, continuations-in-part and
dlvlslonals), filed six months sfter enactment of the above
legislation, be counted from the filing date of the
earliest-filed of any applications invoked under 35 U.S.C. 120.

^ '^ BrucV A. Lehman

Wataru Asou

Commissioner A-sslstant Secretary of Commerce and

Japanese Patant Office Commissioner of Patents and

Tradaaarks
United States Patent and Trademark

Office

375

Appendix 4.— Letter From Herbert C. Wamsley, Executive Di-
rector, Intellectual Property Owners (With Attachments),
TO Hon. William J. Hughes, Chairman, Subcommittee on In-
tellectual Property and Judicial Administration, and Hon.
Dennis DeConcini, Chairman, Senate Subcommittee on Pat-
ents, Copyrights and Trademarks, August 17, 1994

Roo»rS SmMh
IBM Corp

VICE PRESffiEHT

GaryL GnswoU

RoOsn L Andtnan
FMC Cofp

Uomwi L Balmer
Union CartNds Cocp

RobsrtP Haylvr

Un«w] TechnologMS Corp

Edward P H«ier, ill
SaagBteTedvx>k>gtas. Inc

Wayne C JaaschM
Hsnkal Corporation

John J Kloctio, III
E I du Pont da Namoun
&Co

PaulJ KorvurMmt
Synargen. Inc

WHhamF Mars^

Air Products artd

Chamcats. (nc

Alaxartdar McKHtop
Mom Ol Corp

GaroA Parioyar
Mars IrKorporatad

Ralph 0 PvHo
Urwwsitv o( Vtrgma

A>«iW RtcrwT>ond
Philhps Petroleum Co

Melw^J Sco^ck
Pitney Bovvas Inc

IPO

INTELLECTUAL

PROPERTY

OWNERS

August 17, 1994

1255 TWENTY-THIRD STREET. NW
SUITE 850

WASHINGTON. DC 20037
TELEPHONE (202) 466-2396
FAX (202) 466-2893

SUBC. ON iPJA

Hughes

The Honorable Dennis DeConcini

Chairman

Senate Judiciary Subcoitmiittee on

Patents, Copyrights & Trademarks

Washington, DC 2 0510

The Honorable William J.

Chairman

House Judiciary Subcommittee on

Intellectual Property and

Judicial Administration
Washington, DC 20515

Dear Chairmen:

During the joint hearing on GATT implementing legislation on August
12, 1994, Commissioner Lehman referred to a patent issued 36 years
after the first application was filed. A colloquy between Chairman
Hughes and Commissioner Lehman suggested that perhaps 36 years is
the record for the longest pendency in the Patent and Trademark
Office .

Enclosed is the first page of patent number 5,283,641, issued almost
40 years after the first application was filed in 1954. The section
entitled "Related U.S. Application Data" lists a string of 11
earlier applications including continuations, continuations-in-part,
and divisions .

Also enclosed is a statement by Intellectual Property Owners
supporting the 20-year patent term measured from filing that was
delivered to the Subcommittee offices on the eve of the hearing.

We request that this letter eind enclosures be included in the record
of the hearing.

Sincerely,

/ '^^i/'c^^^^..,^..

Herbert C. Wamsley
Executive Director

Enclosures

85-525 5.5

JohnK

Waatrtghousa Elactnc Corp

EXEOTIVE MRECTOn

HarttanC Wamslay
Waahngton.DC

AdaE BamM
Waahlngton. CK;

A NONPFK>F[T ASSOCIA VON REPRESENTING PA TENT, TRADEMARK AND COPYRIGHT OWNERS

376

United States Patent [w]

Lemelson

US0052g364IA

[II] Patent Number:
[43] Date of Patent:

5^3,641
Feb, 1, 1994

[54] APPARATUS AND METHODS FOR
AUTOMATED ANALYSIS

p6] loveotor: Mrom* H. I,x»ri»o«. Ste. 286. Unit
802. 930 Taboe Blvd., locUne
VflUge. Nev. 89431-943*

(21] Appl. Na: 7MS1

[22] FUed: Jaa. 16. 1993

Rdatod U.S. AppUcatioa Data

[60] Coodnauiaa of Scr. No. U6.61 7. Jan. 2S. 1992, which
h ■ cootbutioa of Scr. Na 42tJ0Vf. Oct 24. 1989. Pat.
Na 3.1 19.19a which Is a diviiioa of Scr. Na 906.969.
Sep. 13. 1986. Pu. Na 4.984.07X which it * oootiaiu-
tioa of Scr. Na 723,183. Apr. 13. 1985. P»t. No.
4.66aOS6. which Is i contiaiution of Scr. Na 394.946,
iuL 2. 1982, Pat. Na 4.311.918. which is s divitioa of
Scr. Na I3.t08. Feb. 16. 1979. Pat. Na 4J38.626
which is a divitioa of Scr. Na 778J3I. Mar. 16. 1977,
Pat. Na 4,148.061. which it a coatinasuoa of Scr. No.
254,710. May 18. 1972. Pat. Na 4.118.73a which it a
cootiouaiion-ln-pan of Scr. Na 267.377. Mar. 1 1. 1963.
abandoocd, which it a cootinuatiOD-iii-pan of Scr. No.
626J11. Dec. 4. 1956 Pal. Na 3.08U79. and a con-
tinuatioa-in-pan of Scr. No. 477,467. Dec. 24. 1954,
abandoned.

[51] iBt a.» H04N 7/18

[52] U,S. a. 348/92; 348/142

[58] Field of Search 358/93. 101. 107, 106.

358/108, 903; 356/237; H09N 7/18. 7/00

(36] Refereacc* ated

U.S. PATENT DOCUMENTS

Re. 31.239 3/1983 Umclton 178/6

Bl-Re.3U39 3/1990 LemcUon 178/6

1,24).160 10/1917 Orieb .

1,722.751 7/1929 Jonet .

1,815.986 7/1931 Parker .

1,815.996 7/1931 Weaver .

1.889.576 11/1932 Snook .

2,000.403 5/1935 Maul 235/92

2.M2J08 5/1935 McFarUne 178/5

2.015.738 10/1935 WinUey el al 33/123

2,016,581 10/1935 Scij 33/129

2.031.303 2/1936 Raincy 271/2.6

2,043.293 6/1936 Jennings 243/16

2.036.382 10/1936 Ayrct et al 209/111

2.131.911 10/1938 Ayrct _._ 230/415

2.137.187 11/1938 Stoaic _ 88/14

2.184.156 12/1939 Bowles „.. 33/123

2.184.157 12/1939 toaa J3/123

2.184.159 12/1939 Stockbargcr ci al. 33/123

2.184.160 11/1939 Slockbvgcr c« al. 33/123

2,22a736 11/1940 Slockbartcr ct al. 88/14

2J38.947 4/1941 Roaa 179/100.3

2447.6*4 7/1941 Hickok 209/111

2^61,342 11/1941 Dickiasoa el al 233/61.11

2,2ia948 4/1942 OuUikscn 230/41.3

2.293,000 9/1942 Monc 171/97

2J1S.856 3/1943 HofTmaa 209/82

(List coniinued on nexl page.)

FOREIGN PATENT DOCUMENTS

729467 12/1942 Fed. Rep. of Oermaay 74/21

731333 3/1943 Fed. Rep of Oermaey 74/21

OTHER Pl^LICATlONS

Cockrell. W. D.. "Phototube Control of Packaging
Machino." Elearonla, Oct. 1943.

(List continued on next page.)

Primary Exemlntr — James J. Groody
Aaislani Exominrr — Safel Metjahic
Attorney, Agent, or Firm — J. Kevin Parker

[57] ABSTRACT

Apparatus and methods are disclosed for automatically
inspecting three-dimensional objects or subjects. A de-
tector and the object are moved relative to each other.
Id one form, a detector, such as a camera or radiation
receiver, moves around an object, which is supported to
be rotatable such that the detector may receive electro-
magnetic energy signals from the object from a vancty
of angles. The energy may be directed as a beam at and
reflected from the object, as for visible light, or passed
through the object, as for x-ray radiation. Alternatively,
the detector passively receives energy from the object,
as in an infrared detector. The detector generates ana-
log image signals resulting from the detected radiation,
and an electronic computing means process and ana-
lyzes the analog signals and generates digital codes,
which may be stored or employed to control a display.

20 daimt, 13 Drawing ShccU

377

IPO

INTELLECTUAL

PROPERTY

OWNERS

STATEMENT BY
INTELLECTUAL PROPERTY OWNERS (IPO)

FOR THE RECORD OF JOINT HEARINGS ON AUGUST 12, 1994

SENATE JUDICIARY SUBCOMMITTEE ON
PATENTS, COPYRIGHTS, AND TRADEMARKS

AND

HOUSE JUDICIARY SUBCOMMITTEE ON
INTELLECTUAL PROPERTY AND JUDICIAL ADMINISTRATION

LEGISLATION RELATING TO GATT IMPLEMENTING LANGUAGE
(H.R.4894 AND S.2368)

", . . The 20-year patent term from filing will provide at least as much
patent life as the existing term of 17 years from grant for U.S.
companies, inventors, and universities in virtually all cases. At the
same time, the new measure of patent life will help eliminate abuses of
the patent system that are harming U.S. industry and the consuming
public . . . ."

378

INTELLECTUAL PROPERTY OWNERS

Subcommittee Chairmen and Members of the Subcommittees:

Intellectual Property Owners (IPO) is a non-profit association
that represents companies and individuals who own patents, trademarks,
copyrights, and trade secrets. IPO members are responsible for a
substantial portion of the private research and development performed
in the United States. During 1993 IPO members were granted about
12,000 United States patents, 23 percent of all U.S. patents granted to
U.S. nationals.

IPO strongly supports the 20-year patent term measured from filing
as it is proposed in S.2368, the Administration's draft legislation for
implementing the Trade Related Aspects of Intellectual Property Rights
(TRIPS) portion of the GATT agreement.

The 20-year patent term from filing will provide at least as much
patent life as the existing term of 17 years from grant for U.S.
companies, inventors, and universities in virtually all cases. At the
same time, the new measure of patent life will help eliminate abuses of
the patent system that are harming U.S. industry and the consuming
public .

A 20-year patent term from filing was recommended as early as
1966, by President Johnson's Commission on the Patent System. The scune
type of 2 0 -year term was recommended, in the context of patent law
harmonization, by the Commerce Department's Advisory Commission on
Patent Law Reform in 1992. IPO has supported a 20-year term from
filing as a part of patent law harmonization and in separate
legislation .

The current term of 17 years measured from patent grant is
interfering with the patent system's objective of stimulating progress

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INTELLECTUAL PROPERTY OWNERS

in technology. A term measured from grant encourages applicants to
file too many successive continuing applications on the same invention.
The result is "submarine" patents, kept alive through continuing
applications, that remain submerged in the Patent and Trademark Office
in secrecy year after year and cause a great deal of mischief. Large
and small companies and independent inventors sometimes have abused the
system by obtaining submarine patents.

Such patents delay dissemination of technological information to
the public and prolong the period of uncertainty about the status of
legal rights in inventions. Submarine patents can be a brutal surprise
to companies who manufacture in the U.S.

One IPO member spent tens of millions of dollars to launch a new
product that turned out to be very successful. Unfortunately, within a
year after launch, another party obtained a U.S. patent covering the
product after a pendency period of 22 years in the Patent and Trademark
Office. In that case, the corresponding foreign patents had expired
before the U.S. patent issued. No patent should remain in the Patent
and Trademark Office that long and then commence a term of exclusivity.

U.S. companies that invest in product development and
commercialization and find they are blocked from the market by a
submarine patent ultimately pass on their costs to consumers. Patents
that continue 10, 15, and in some cases more than 20 years beyond the

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INTELLECTUAL PROPERTY OWNERS

time they normally should have expired discourage new product
innovation more than they encourage it'.

With a term of 20 years from filing, applicants will no longer be
able to extend their patent terms through intentional delay in the
Patent and Trademark Office. They will find it more often to their
benefit to prosecute applications quickly and efficiently. This will
improve the effectiveness and reduce costs of the Patent and Trademark
Office.

The 20-year patent term and Senator DeConcini ' s pending bill,
S.1854, which requires the Patent Office to make applications public 18
months after filing if a patent is not issued by that time, will
eliminate the submarine patent problem. IPO recommends adding the 18-
month publication system of S.1854 to the GATT implementing
legislation, and alternatively, supports enactment of an 18-month
publication bill as a separate measure.

Eighteen-month publication with a provisional right to a
reasonable royalty complements the 20-year term measured from filing.
A reasonable royalty after publication may compensate the patentee for
time lost from the 20-year patent term as a result of any delays in the
PTO that are not taken care of by other provisions in the 20-year term
legislation .

The facts simply do not support the argument that the 20-year term
as proposed in S.2368 will shorten patent life. Since the Patent and
Trademark Office grants the average patent about a year and a half

'Forty year pendency is not unheard of. "A 'submarine patent' surfaces
40 years after the inventor filed his application , " by Teresa Riordan, Ih£
New York Times. April 4, 1994.

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INTELLECTUAL PROPERTY OWNERS

after filing^, a term of 17 years after grant equates to a term of 18
1/2 years after filing. A term of 20 years after filing will give an
average applicant who has not filed continuing applications 1 1/2 years
more protection than the applicant receives under current law.

If an application is pending for three years, a term of 20 years
after filing will give the same patent life as a term of 17 years after
grant. Applicants in nearly all cases can obtain a patent within three
years .

Moreover, S.2368 contains a provisional application/domestic
priority procedure that is designed to assist particularly smaller U.S.
inventors by allowing them to file an inexpensive provisional
application for $75. The provisional application, which can remain on
file for a year before the filing of a complete application, is not
counted in measuring the term of twenty years from filing. In other
words, the patent life may extend for up to 21 years from the filing of
a provisional application. A party filing a provisional application or
other domestic priority application can have a pendency of four years
from the first filing and obtain the same patent life as with the
current 17-year term after grant.

For these reasons, very few applicants will experience any term
shortening, even with the examining and prosecution procedures followed
by the Patent and Trademark Office and applicants currently. For the
very few applications that require more than three to four years to
grant now, changes in Office procedures and the procedures followed by

^Average pendency time in the Office for all applications was 19.5 months
in 1993. According to the 1995 Budget Submission of the President, average
pendency for all applications in 1995 will be 18.9 months. Average pendency
for biotechnology applications will be 18.9 months in 1995. Average pendency
for computer-related applications will be 24.9 months in 1995.

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INTELLECTUAL PROPERTY OWNERS

applicant's attorneys can shorten the time to grant. ^ For instance,
applicant's attorneys can change their almost universal tradition of
taking 3 to 6 months to respond to every Patent Office letter.
Applicants and their attorneys can start presenting a range of patent
claims, from broad to narrow, as a part of the initial filing.

Twenty years measured from filing is a basic reform that has been
discussed in numerous public hearings for decades*. The Administration
already has made a commitment to support separate legislation,
H.R.4505, which includes a term of 20 years from filing. It would be
complicated and confusing to users of the patent system to change the
term to the longer of 17 years from grant or 20 years from filing now
in order to comply with GATT, and then change it again in the next
Congress in order to achieve the benefits explained in this statement
and to harmonize laws with other countries.

We urge including in the GATT implementing legislation the 20-year
patent term measured from filing as proposed in S.2368.

# # #

'The Administration's bill provides extensions for patent owners who are
delayed by interference proceedings and secrecy orders. About 200
interferences are declared each year, involving around 400 patents or patent
applications, out of more than 150,000 applications a year filed. About 50
percent of the interferences are pending for a year or less. About 10 percent
are pending for more than three years. A single interference of 592 studied
was pending for more than 5 years. See I. A. Calvert and M. Sofocleous,
"Interference Statistics for Fiscal Years 1989 to 1991," 74 .Jotirnfli Pf thg
Patent and Trademark Office Society 822 (1992).

'The Bureau of National Affairs, Inc. reported as follows on the Patent
and Trademark Office public hearings of Oct. 7 and 8, 1993, at which dozens of
witnesses testified: "Spokespersons for both large companies and small
inventors expressed virtually unanimous support for a 20-year term measured
from filing." 46 BNA ' s Patent. Trademark & Coovriaht Journal 511, Oct. 14,
1993.

383

Appendix 5. — Statement by Intellectual Property Owners

(IPO), August 12, 1994

IPO

INTELLECTUAL

PROPERTY

OWNERS

STATEMENT BY
INTELLECTUAL PROPERTY OWNERS (IPO)

FOR THE RECORD OF JOINT HEARINGS ON AUGUST 12, 1994

SENATE JUDICIARY SUBCOMMITTEE ON
PATENTS, COPYRIGHTS, AND TRADEMARKS

AND

HOUSE JUDICIARY SUBCOMMITTEE ON
INTELLECTUAL PROPERTY AND JUDICIAL ADMINISTRATION

LEGISLATION RELATING TO GATT IMPLEMENTING LANGUAGE
(H.R.4894 AND S.2368)

". . . The 20-year patent term from filing will provide at least as much
patent life as the existing term of 17 years from grant for U.S.
companies, inventors, and universities in virtually all cases. At the
same time, the new measure of patent life will help eliminate abuses of
the patent system that are harming U.S. industry and the consuming
public . . . ."

384

INTELLECTUAL PROPERTY OWNERS

Subcommittee Chairmen and Members of the Subcommittees:

A 20-year patent term from filing was recommended as early as
1966, by President Johnson's Commission on the Patent System. The scime
type of 20 -year term was recommended, in the context of patent law
harmonization, by the Commerce Department's Advisory Commission on
Patent Law Reform in 1992. IPO has supported a 20-year term from
filing as a part of patent law harmonization and in separate
legislation .

The current term of 17 years measured from patent grant is
interfering with the patent system's objective of stimulating progress

385

INTELLECTUAL PROPERTY OWNERS

386

INTELLECTUAL PROPERTY OWNERS

time they normally should have expired discourage new product
innovation more than they encourage it'.

The 20-year patent term and Senator DeConcini's pending bill,
S.1854, which requires the Patent Office to make applications public 18
months after filing if a patent is not issued by that time, will
eliminate the submarine patent problem. IPO recommends adding the 18-
month publication system of S.1854 to the GATT implementing
legislation, and alternatively, supports enactment of an 18-month
publication bill as a separate measure.

'Forty year pendency is not unheard of. "A 'submarine patent' surfaces
40 years after the inventor filed his application ," by Teresa Riordan, The
New York Times. April 4, 1994.

387

INTELLECTUAL PROPERTY OWNERS

Average pendency time in the Office for all applications was 19.5 months
in 1993. According to the 1995 Budget Submission of the President, average
pendency for all applications in 1995 will be 18.9 months. Average pendency
for biotechnology applications will be 18.9 months in 1995. Average pendency
for computer-related applications will be 24.9 months in 1995.

388

INTELLECTUAL PROPERTY OWNERS

applicant's attorneys can shorten the time to grant.' For instance,
applicant's attorneys can change their almost universal tradition of
taking 3 to 6 months to respond to every Patent Office letter.
Applicants and their attorneys can start presenting a range of patent
claims, from broad to narrow, as a part of the initial filing.

We urge including in the GATT implementing legislation the 20-year
patent term measured from filing as proposed in S.2368.

# # #

'The Administration's bill provides extensions for patent owners who are
delayed by interference proceedings and secrecy orders. About 200
interferences are declared each year, involving around 400 patents or patent
applications, out of more than 150,000 applications a year filed. About 50
percent of the interferences are pending for a year or less. About 10 percent
are pending for more than three years. A single interference of 592 studied
was pending for more than 5 years. See I. A. Calvert and M. Sofocleous,
"Interference Statistics for Fiscal Years 1989 to 1991," 74 Journal of the
Patent and Trademark Office Society 822 (1992).

*The Bureau of National Affairs, Inc. reported as follows on the Patent
and Trademark Office public hearings of Oct. 7 and 8, 1993, at which dozens of
witnesses testified: "Spokespersons for both large companies and small
inventors expressed virtually unanimous support for a 20-year term measured
from filing." 46 BNA's Patent. Trademark & Copyright Journal 511, Oct. 14,
1993.

389

Appendix 6. — Statement by Intellectual Property Creators,

August 12, 1994

Intellectual Property Creators

The Inventors' Coalition to Strengthen the Patent System

Statement by
InteDectiial Property Creators

For the record of joint hearings on August 12, 1994

senate judiciary subcommntee on
patents copyrights and trademarks

and

HOUSE JUDICIARY SUBCOMMITTEE ON
INTELLECTUAL PROPERTY AND JUDICIAL ADMINISTRATION

on legislation relating to GATT implementing language
(HJi. 4894 and S. 2368)

"We need to use a scalpel, not a meat cleaver."

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Intellectual Property Creators Page 2

Intellectual Property Creators

Intellectual Property Creators is a recently formed group that represents
inventors and others who create intellectual property. While other organizations
represent the corporate interest of intellectual property owners, Intellectual Property
Creators represents the inventors who create the inventions. A recent open letter
from Intellectual Property Creators was signed by 50 inventors including 15
inductees into the Inventors Hall of Fame and 2 Nobel Laureates. While other
organizations such as the IPO reflect the experience of large companies with a
franchise to protect and most of whose research is involved in incremental
improvements, the Intellectual Property Creators reflect the experience of inventors
vkdiose inventions often create new product classes <ind even new industries. While
we support the rights of individuals and comparues of all sizes to have strong
intellectual property ri^ts, our particular interest is to ensure adequate inteUectual
property laws to encourage launching pro ducts and new businesses based on
substantial new inventions..

Backgroimd

The issues behind this and other proposed changes in the patent laws involve
determining the intellectual property needs of mature industries sector with
existing franchises to protect inventors and small companies developing new
technology.

The US. is more irmovative than Japan or Europe. We believe that a major
factor in that innovation the difference between US. and other patent laws in their
effect on encouraging innovation. We believe the patent proposals under
consideration have gotten much of their support from, and, indeed, are promoted
by, established companies with franchises to protect. We feel that any changes in the
patent laws should be done by using a scalpel We belive that the 20 year from filing
proposal is a meat cleaver approach which will sever the muscle of our patent law
and will have the effect of bringing the US. down to the lower level of innovation
of foreign countries.

We belive that the major reason for the meat cleaver approach of the 20 years
from filing is that Commissioner Lehman has made an agreement with the

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Intellectual Property Creators Page 3

Japanese to do this. And we believe that the Japanese want the 20 year from filing
term precisely because they want a meat cleaver crashing down on our patent
system.

The Problems and the proposed solution

In his testimony. Commissioner Lehman said he proposes a 20 year from
filing term for two reasons:

(a) to be in conformance with GATT.

(b) to eliminate submarine patents.

Simple changes of very limited effect in that patent law will address both
problems.

Conformance with GATT: IPC supports patent terms running from issue.

IPC strongly objects to the issuance of a patent term running from filing. It
strongly supports retaining the term of 17 or more years from issue. More
specifically it supports a term of 17 years from issue or 20 years from filing
whichever is longer so as to be in conformance with GATT.

Submarine Patents: Patents are sbwto issue because of patent office procedures.

Commissioner Lehman and others have said that inventors intentionally
delay the issuance of patents. These remarks are of a conchisionary nature and we
have not seen the basis for such a conclusion. We think that any major change in
the patent laws should be based on substantial evidence. IPC has only identified
two "submarine" patents referred to by those proposing the change. The delay in
both of these patents was due to interference proceedings and not delay by the
applicants.

IPO's alleged submarine patent. IPO in its written testimony and a letter it
wrote to several members of Congress referred to a patent that was a "brutal
surprise". Investigation shows that the patent involved was patent number
4JS76jS98. Both Dupont the patent holder, and the brutally surprised Dow are
members if the EPO. The major reason this patent took 22 years to issue was because
it was involved in an interference. (See addendum)

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Intellectiial Property Creators Page 4

NAM'S alleged submarine patent. Mr. Muir in his testimony for the
National Association of Manufactures before the joint committee referred to
another patent that took about 20 years to issue. Mr. Muir informed me he referred
to patent number 4^21,410, (4;369^63, and 4^37^98 are related patents). This patent
was involved in 2 interferences.

Since interferences are not imder control of the applicant and require
extensive procedures in the patent office, these patents do not support the
contention that there are submirine patents where the applicant deliberately delays
their issuance. What 1 think we can conclude from these two patents — the only
patents those who would use the meat cleaver identified — and other patents
mentioned in the appendix that:

a) Patent delays in the patent office hurt applicant and potential infringer
alike. One should not oiJy penalize the patent applicant for the delay.

b) The patent offices procedures are slow and need to be revised to make them
faster and more efficient.

While the IPC acknowledges that there may be some abuse with the current
system, it believes that:

a) The amount of abuse by applicants has been greatly exaggerated.

b) The amount of abuse by those who challenge the applicant's patents in both
prosecution and in especially in litigation far exceeds the abuse by applicants.

The proposed 20 year from issue system would encourage abuse by, among
other things, encoviraging people to initiate frivolous interferences so as to deal a
patent issuance and shorten its term. It makes the time clock run against the
inventor where the patent office is the cause of the delay.

IPC objects to publishing patents prior to issue without an action by the applicant.

Commissioner Lehman testified that the 20 year rule was needed to prevent
submarine patents. Within a week of his testimony, he announced an agreement
with the Japanese to publish patents 18 months after the application was filed. This
agreement, if passed by Congress, would eliminate submarine patents because the
publication of the patent applications would surface the fact that such patents are
being examined.

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Intellectual Property Creators Page 5

IPC is against the publication of patent applications prior to issue without a
positive act on the part of the patent applicant. Such publication turns the basic
patent contract — publication in return for a limited period of exclusivity — into a
suckers contract. The inventor would agree to publish and the government would
agree that maybe it would give exclusive rights to something that has not yet been
defined.

IPC has no objection to publishing of continuation applications filed after five years

The one major area in which the applicant can be argued to have some
control in delaying their issuance is in filing a series of continuations. While we
have seen no evidence that this is a substantial problem, we see a limited change in
the law will substantially reduce, if not eliminate, the possibility of such abuse. We
would have no objection to publishing a parent application where a continuation is
filed more than 60 months after the parent application was filed. This minimal
change only involves a small number of patents. It cuts with a scalpel, not a meat
cleaver. This change would have several advantages:

(a) Only a small number of applications would be published prior to grant,
decreasing the costs on the patent office of publishing all patents.

(b) It requires a positive act of the applicant to cause publication: he must file a
continuation. The applicant can avoid publication by not filing a continuation.

(c) Since this forces the publication of any patents that mig^t be subject to
intentional delay, it eliminates most submarine patent problem alleged to exist.

Other Information

Attached to this are

(a) An open letter to President Clinton singed by 50 inventors objecting to the
20 year from filing proposals.

(b) A letter by Remy Landau describing his experience in having a patent
delayed for an additional 11 years (for a total of 13) purely as a result of actions of the
patent office.

(e) An addendum that describes several patents that were in that patent office
for a long time, none of which appear to have been substantially delayed by the

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Intellectual Property Creators Page 6

applicant. All seem to have been delayed by that patent office procedures.

We support an examination of the efficiency of patent office procedures

We appreciate the Intellectual Property Organization and the National
Association of Manufactures bringing the slow patent office procedures, especially
wdth regards to interferences, to the public attention and their pointing out how
devastating such slow procedures cem be. In this light we suggest that Congress
undertake hearings on why the patent office procedures are so slow and propose
new laws that will speed up the examining and granting of patents especially where
interferences are involved.

Addendum Some Examples of Slow to Issue Patents

Several patents have taken several years to issue due to the bureaucratic
delays in the patent office. The patents that follow were not developed by a scientific
sample, but were the result of asking inventors of patents that had been in the
patent office for a long time:

22 years. . The IPO mentioned a patent that came as a brutal surprise. Mr. Smith,
IPO's resident, in a letter to members Congress on behalf of IPO says of that patent:

Submarine patents can be a brutal surprise to companies v^o
manufacture in the US. One IPO member spent tens of millions of
dollars to launch a new product that turned out to be very
successful Unfortimately, vWthin a year after launch, another party
obtained a US. patent covering the product after a pendency period
of 22 years in the Patent cmd Trademark Office. In that case the
corresponding foreign patents had expired before the US. patent
issued.

With a term of 20 years from filing, applicants would no longer be
able to extend their patent terms through intentional delay in the
Patent and Trademark Office...

Investigation shows that the patent involved was mentioned by Mr.
Waterman, the then Chief Patent Counsel of Dow Chemical, in his testimony of the

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Intellectual Property Creators Page 7

Public Hearings on Patent Law Harmonization (pages 9 and 10; 130 pm, Friday
October 8, 1993). The patentholder was Dupont. Both Dow cind Dupont are
members if the IPO. While in the letter Mr. Smith appears to charge Dupont with
"intentional delay" in the Patent Office, the real cause for the delay was 2
interference proceedings, and the patent office's slow, cumbersome and bureaucratic
procedures for handling interferences. While this patent's existence may have
appeared as "mischief to Dow ("brutal surprise" was Mr. Smith's characterization),
the following facts on this case provide a more balanced perspective:

• The 22 year interference proceeding was likely an excruciating experience
for DuPont. It would be to any small company. Both Dow and Dupont are victims
of the patent office delay. The proposed 20 year from filing solution would cause
only the patent applicant to suffer for the patent office delay, while under the
current system the inventor (who gets a late patent) and those who would use his
technology (and would have to license the patent) share the agony of the patent
office delay.

• Dow Chemical was able to negotiate a conditional license for Dupont and
they marketed a profitable product (Dowlex). The surprise was not so brutal, there
was an acceptable result.

• The patent was eventually held invalid by the courts. 22 years ami the
patent office still couldn't get it right.

I find it urifortunate that Mr. Smith charges Dupont with intentionally
delaying a patent's issuance.

20 years>. Mr Muir in his testimony referred to a patent which took about 20 years to
issue. Mr. Muir informed me he referred to patent number 4,621,410, (4,369,563,
and 4,237,598 are related patents). This patent was involved in 2 interferences.

11 years. Dr Richard Pave lie, a signer of the Inventors ktterto President Clinton,
had one patent in process for 11 years. He felt that the patent office would not allow
claims he had a right to, so he eventually abandoned the patent rather than spend
more money.

29 years. Gordon Gould, a signer of the Invento rs ktterto President Clinton and a
member of the National Inventors Hall of Fame, had the patent office take 29 years
to issue his patent on the laser. It was subject to 3 interferences.

13 years. Pardo and Landau took 13 years to get their patent issued (Filed in 1970;

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Intellectual Property Creators Page 8

issued in 1983). They have what could well be a patent that reads on all computer
spreadsheet programs; they filed suit for patent infringement against Lotus in 1989
and have yet to have a decision on the first phrase of their trial that was held over a
year ago. These inventors filed their patent application in 1970 — 24 years ago — and
have yet to have to get a penny on their patent or have the courts issue a decision
on their infringement lawsuit, (see attached letter from Remy Landau a
coinventor.) I understand that Mr. Landau has found his experience in getting and
enforcing his patent to be a "brutal surprise."

4 years and still going. As the writer of this, I, Paul Meckel, have a patent that has been
in the patent office for reissue since April 1990 — over four years ago — and we have
yet to get agreement on claims. Three tin\es the patent office has come back to reject
the claims on new bases. As a reissue patent, my patent expires in April 2005, 17
years from when the original patent issued. 1 have every incenfive to get the patent
issued as soon as possible. However, the patent office has an incentive to delay it,
and scrutinize it carefully, lest it reissue claims which get overturned in court or get
attacked in the press.

It tookthe United States less time to win World War P. then to issue any of these patents.

It is. not the Infringer" as the inventors who get the "brutal surprises." Mr. Smith talks
about "brutal surprises." None of these inventors expected their patents to take
more than two or three years to issue. An inventor receives an official government
document — a patent — which says he has a right to exclude others from making,
using or selling their invention. The brutal surprises they face are not just how
long it can take to get a patent, but how weak and poorly drafted his patent often
proves be and the arrogance and stonewalling of large companies who refuse to deal
with infringement in good faith and on the merits. Moreover, inventors find the
the press is biased against inventors who assert their patents probably because the
infringers have a smooth public relation machines and big ad budgets. For example,
after the Court in 1991 in Cetus v. Dupo nl held Kary Mullis, a signer of the
Inventors letter to President Clinton was the inventor of the Polymerase Chain
Reaction, a major business magazine reported that the scientific community
believed he was not. In 1993 Kary Mullis was awarded the Nobel prize in Chemistry
for that invention. Unfortunately few inventors are so spectacularly vindicated.

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Intellectual Property Creators

The Inventors' Coalition to Strengthen the Patent System
An Open Letter to President Clinton from America's Inventors

July 18. 1994

The Honorable William Jefferson Clinton
The White House
Washington DC 20500

Dear President Clinton:

We represent a cross section of inventors who have developed inventions ranging from
simple consumer products to breakthrough technologies all of which have contributed to our
country's economic growth, standard of living, health, and technological leadership. Most of us
are not only inventors but technology entrepreneurs. We share your concerns about the growth of
the U.S. economy and your vision for America's continued greatness, but we are concerned about
unnecessary changes being proposed to the patent laws in the GATT enabling legislation.

The U.S. patent system was established in the Constitution by our founding fathers. It is a
unique and crucial part of our free enterprise system. It has made the U.S. the worid leader, not
just in pioneering new product concepts and technologies, but bringing them to market. It is not a
coincidence that some of those who framed our form of government were inventors: Benjamin
Franklin, a founder of the science of electricity, invented bifocals and the Franklin stove. Thomas
Jefferson, the first Patent Commissioner, invented a cryptographic system that was used by the
United Slates during Worid War II. Lincoln, the only president to be issued a patent, a patent
litigator, and a technology president who promoted several new technologies into use in the civil
war, declared "patents added the fuel of interest to the fire of genius."

Nobel Laureate Robert Solow estimated that 90% of the U.S. economic growth is the result
of technological advances. Whole industries have sprung up from the inventions of Eklison, Bell,
and the Wright brothers. A review of the signatories of this letter demonstrate that today inventors
are still creating new companies and new industries. U.S. technological leadership is based on
American inventors' willingness to challenge the conventional wisdom and our patent system
which supports them in that effort. The loss of the vitality of our patent system will threaten our
technological leadership.

It is the people of the U.S. who benefit from the high growth, high paying industries
which are created by inventors and technology entrepreneurs.

146 Main St. Suite 404 Los Altos, CA Voice: 41 5/948-8350 Fax: 415/948-7319

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Inventors Open Letter to President Clinton Page 2

We understand that the enabling legislation for the General Agreement on Tariff and Trade
(GATT) includes administration language that would change the present patent term from 17 years
finom the dale of issuance to 20 years from the date of filing. While most patents take 2 or 3 years
to issue, important patents, especially those in new technologies, take longer — often a decade or
more. One of Gordon Gould's laser patents took 29 years to issue. The proposed change would
start the clock ticking before the patent issues, thus encouraging delaying tactics by those who
don't want the patent to issue, penalizing inventors for patent office delay, and significantly
reducing the worth of the patent and the incentive to invest in developing the invention.

The patent system, like the First Amendment, is a critical element of the Constitution,
designed to protect and encourage those who advocate change. The proposed modifications to the
patent law appear to have been inserted in response to requests from those threatened by
technological change they can't control.

President Clinton, you yourself understand the difficulty innovators face. Indeed, you
quoted Machiavelli on the subject:

There is nothing more difficult to carry out, nor more doubtful of success,
nor more dangerous to handle, than to initiate a new order of things. For the
reformer has enemies in all those who profit from the old order and only
lukewarm defenders in those who would profit by the new order. . .

The proposed patent changes would rob the U.S. of its technological leadership by tilting
the playing field even more against pioneers and in favor of the copiers.

It is crucial that any proposed patent law changes be in a separate bill, apart from GATT.
Such proposals should be voted on ONLY after OPEN Congressional hearings. Congress should
have the benefit of testimony from not just patent lawyers but inventors — especially those who
have founded companies based on their inventions. If Congre'ss is to change the patent laws, it
must understand how the patent system works from the perspective of not just big companies and
patent lawyers, but from inventors such as us.

Passing GATT requires a minimal change to the current patent system. GATT makes no
reference to filing or issuance dates. The U.S patent system would comply with GATT by making
the patent term expire 20 years from issue. We adamantly oppose any part of the proposed
"TRIPS" legislation that is not absolutely required by GATT. We urge you to ask Congress to
hold hearings on any proposal on how to sfrengthen the patent system..

Sincerely yours,

Paul Meckel, for Intellectual Property Creators and the inventors listed below

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Inventors Open Letter to President Clinton Page 3

Members of the National Inventors Hall of Fame and some of their inventions

Dr. Frank Col ton, Enovid, The first oral contraceptive

Raymond Damadian, M.D., The Magnetic resonance imaging scanner

Gertrude B. Elion, D.Sc, leukemia-fighting & transplant rejection drugs. Nobel Laureate

Dr. Jay Forester, Random access computer core memory

Gordon Gould, Optically pumped laser amplifiers

Dr. Wilson Greatbatch, The cardiac pacemaker

Leonard Greene, Aircraft stall warning device

Dr. Robert Hall, High-voltage, high-power semiconductor rectifiers

Dr. William Hanford, Polyurethane

Dr. James Hillier, Electron Lens Correction Device

Jack Kilby, Monolithic integrated circuit

Robert Ledley, M.D. The full body cat scanner

Dr. Irving Millman, Hepatitis B vaccine & test to to detect hepatitis B

John Parsons, Numerically controlled machine tools

Dr. Robert Rines, High resolution image scanning radar, internal organ imaging

Members of the American College of Physician Inventors

Dr. Herbert Dardik, Umbilical vein graft

Dr. Thomas Fogarty, Balloon catheter

Dr. Arnold Heyman, Bard/Heyman urethral instrument system

Dr. Charles Klieman, Surgical Staplers

Dr. Robert Markison Sailboard hand grip for windsurfmg and surgical instruments

Dr. Lloyd Marks, Cardiac patient monitoring detector

Dr. Leo Rubin, Implantable defibrillator combined with a pacemaker

Other Inventors

Ron Ace, Lightweight photochromic eyeglass lenses

Dr. Sol Aisenberg, Ion assisted deposition of diamond-like thin films

Dr. Paul Burstein, .Rocket motor inspection system

Tom Cannon, Computer kiosk for selecting and printing greeting cards

Bernard Cousino, 8-track tape

Charles Retcher, The Hovercraft

George Freedman, Sleep apnea control system

Dr. Richard Fuisz, Rapidly dissoluble medicinal dosage unit

Elon Gasper, Speech synthesis with synchronous animation

Charles Hall, Waterbed

Paul Heckel, Card and rack computer metaphor

Dr. A Zeer Hed, Freeze ablation catheter

Anthony Hodges, RSI preventing computer keybioard

Walter Judah, Ion exchange membrane

400

Inventors Open Letter to President Clinton Page 4

Martine Kempf. Speech recognition medical control systems

Ron Lesea, Telecommunications equipment and electronic ballasts

Michael Levine, Magistat thermostat. On screen programming used in VCR Plus

Lawrence B. Lockwood, Interactive multimedia information system

I. H Houng Loh. non blood clotting surface for human implantable medical devices

Wallace London, Clothes hanger lock for suitcases, (London v. Carson Pirie Scort)

Edward Lowe, Kitty Litter

E. Cordell Lundahl, Stakhand Hay Handler and other Farm Machinery

Paul MacCready, The Gossamer Condor and Gossamer Albatross airplanes

Jacob Malta, Musical bells {Malta v. Schulmerich)

George Margolin, Microfiche readers, folding pocket calculators

Stan Mason, Shaped disposable diapers, microwave cookware, granola bar

Kary Mullis, Polymerase Chain Reaction, Nobel Laureate

Tod Nesler, Non-fogging goggles for sport and the military.

John Paul, Electronic ballasts

Bob Polata, Composite masking for high firequency semiconductor devices

Cary Queen. Document comparison system

Dr. Richard Pavelle, Method for increasing catalytic efficiency

Peter Theis, Automated voice processing

Coye Vincent, Ultrasonic Bond Meter

Paul Wolstenholme, Self erecting grain storage system

The Intellectual I'ropertv Creators Coalition

ALPHA Software Patentholders, Paul Heckel President

American College of Physician Inventors, Dr. Klieman, President

Donald Banner, Patent Commissioner under President Carter

The Inventors Voice, Steve Gnass, President

National Congress of Inventors Organizations, Cordell Lundahl President

United Inventors Association of the USA, Dr. Jenny Servo President

401

Remy Landau
12 Rnmnpy Road
Downeview, Ontario
Canada M3H 1H2

The HonoraJDle Helan Delich Bantley
1610 Longworth House Office Building
Washington, DC 20515

The Honorable Dana Rohrabacher

1027 Longworth Houee Office Building

Washington, DC 20515

August 1, 1994

Honorable Representatives:

Please Keen PS Pat.fwt-. Ternin Meaaured From Date Of locua.

As co^ioventog of JL>S^ Jateot A, 338, 249 I. am vary . respectfully

requesting that Congress continue the current practice of measuring ?«-ny
and all US Patent terms from the DATE OF ISSUB, rather than from the
date of filing as is presently being considered for purposes of GATT.

Ureuiting Patent terms measured from the date of issue is by far the
single most fair practise becaxise far too many unpredictable events
outside the control of the applicants ceui and do arise to unduly delay
-the issuance of patents.

Our software based patent application was trapped in the Patent Office
for U years as a direct consequence uX the 1972 U.S. Supreme Court
ruling in the case of Gottschalk v. Bonaon.

In that ruling, the Supreme Court held that the software based
invention presented was the equivalent of a mathematical algorithm and
therefore ineligible subject matter under the Patent Law.

The Patent Office thereupon took the broadest poE-lble interpretation
of that decision and for the next 10 years fundam,^nt8lly disallowed
almost all of the software based Patent applicatinnA, including ours.

We had applied for a U.S. patent in 1970 and afte^ passing through all
of the due examination procedures our applicatiou had been given a
notice of allowability in 1972. Soon thereafter the Benson decision
was handed down, and the Patent Office withdrew the allowability in
March 1973,' rsfscring ths appircBtroft entifely on the basis of their
understanding of the Banaon decision.

I spent the next 10 years defending the application on a pro se basis,
aoelng myself travel the distance truu the primary examiner to the
Patent Office Board of Appeals, and from there to the Court of Customs
and Patent Appeals, which in 1982 upheld the eligibility of the
appi 1 cation.

After yet another unpredictable delay of one year by the Patent Office,
the patent issued in lSfi3, fully 13 yt^mra after its filing data.

402

- 1 -

It iB preclBely because of this experience, and the entirely
unpredictable nature of the events which caiutAd the undue delay bet:waan
filing and issuance, that I very much fear any change which would
provide a Patent term beginning f ron anything but its date of issue.

Had the present legislation stipulated Patent terms from the date of
filing, as currently proposed, then we would have been unfairly denied
a very substantive portion of the Patent's lifetime.

Therefore, I very strongly bell«v« that Patent terms must continue to
be granted from their date of issue because personal experience has
proved such practise to be the single most fair procedure.

Respectfully Submitted

403
Appendix 7. — Statement by Genentech, Inc., August 12, 1994

STATEMENT OF GENENTECH, INC.

BEFORE THE

JOINT HEARING OF THE

SUBCOMMITTEE ON INTELLECTUAL PROPERTY AND

JUDICIAL ADMINISTRATION

COMMITTEE ON THE JUDICIARY

U.S. HOUSE OF REPRESENTATIVES

AND

SUBCOMMITTEE ON PATENTS, COPYRIGHTS AND TRADEMARKS

COMMITTEE ON THE JUDICIARY

U.S. SENATE

AUGUST 12, 1994

404

EXECUTIVE SUMMARY

Genentech, a leader in the American biotechnology industry,
supports the proposed legislation to implement the Uruguay Round
of the General Agreement on Tariffs and Trade (GATT) . We welcome
the positive changes made in the agreement to strengthen
intellectual property protection worldwide. With certain changes
in the implementing bill, we support the proposed changes to
United States patent law, including the 20 year from filing
patent term.

BACKGROUND

The American biotechnology industry is a vital economic
success story. The growth of this industry over a short 18 year
period has been meteoric. Our biotech firms have produced dozens
of new treatments for diseases, agricultural, and environmental
products using the best of American science, fueled by risk
capital and a strong intellectual property system.

Few other industries can point to a single intellectual
property based court decision as a seminal event in their
history. But the biotechnology industry marks its emergence as
an industry from 1980 when the Supreme Court decided the case of
Diamond v. Chakrabarty. 447 U.S. 303; 206 U.S.P.Q. 193 (S.Ct.
1980) . This is so, because without the incentives to innovate

offered by our patent system and the commensurate protection

against free riding there would be no biotechnology industry.

The Supreme Court's decision in Chakrabarty and subsequent
actions by the courts, and the Congress (especially including the
Process Patent Amendments) , have strengthened the United States
patent system.

GATT

The original goals of the Punte Del Este Declaration in the
Uruguay Round were predominately to improve intellectual property
protection for United States inventors outside the United States.
The assumption for virtually all of the years of negotiation
within the Uruguay Round was that there was little need to change

United States intellectual property law except to the extent

that it was necessary to conform to the GATT, or to secure some
other similar or larger benefit from other trading partners.'

There were at least two major United States goals in the
patent context that were of importance to the United States

Kastenmeier and Beier, International Trade and
Intellectual Property: Promise. Risks and Reality, 2 2 VAND. J.
TRANSNATIONAL, 285 (1989).

405

biotechnology industry. First, the United States wanted to
expand the list of patentable subject matter in the developing
world. Second, we wanted to expand patent term in other
countries, both developed and developing, to a minimum of 20
years from filing. We succeeded in both areas, but with some
exceptions or limitations.

GATT PROBLEMS

SUBJECT MATTER

The proposed GATT agreement substantially improves subject
matter protection by eliminating pharmaceuticals and chemicals
from the list of unprotectable matter. This change will, in
time, mean that other nations will no longer be able to avoid
offering patent protection to these classes of inventions. This
change will eventually reduce piracy and improve our trade
balance. Unfortunately, the language on excludable subject
matter in the patent context includes some inventions related to
biotechnology.

Under the terms of Article 27(3) (B), Contracting Parties to
the GATT (soon to be the World Trade Organization [WTO]) will be
allowed to exclude from patentability the following:

"...plants and animals other than microorganisms, and
essentially biological processes for the production of plants and
animals other than non-biological and microbiological
organisms. . . "

This language excludes from patent protection some subject
matter that would be protected under United States law,
especially in the area of genetically altered plants. It is our
understanding from discussions with the Executive Branch that
this language is a modification of the excludable patent subject
matter language that is used in the European Patent Convention
(EPC) . We expect that this language will be applied in the same
manner as that EPC language has been construed by the European
Patent Office. This would leave us with most of the patent
protection we need for our inventions outside the United States,
but with less protection than is available in the United States.

The language on patentable subject matter is subject to
review after a four year time period by the WTO. [Article 27

(3)(b)]. It is our construction of this Article of the GATT

and a view expressed by the Administration that this review

cannot result in any diminution of patent protection in this
area. Moreover, any changes in this area of patent protection
would need to be adopted using the consensus rule-making process
within the WTO.

406

Nonetheless, we are disappointed that the GATT Round did not
fully require the protection of the entire array of patentable
subject matter for all of our inventions.

TRANSITION PERIOD

In addition to the patentable subject matter protection
problems in the agreement, we were disappointed with the long
transition period for developing countries. Under the agreement,
some nations will have more than 10 years before they are
required to adopt the new GATT minimum standards for intellectual
property protection.

As a result of this potentially long delay, we fully support
efforts by this Committee, and others in the Congress to assure
the continued viability of bi-lateral measures to secure adequate
and effective intellectual property protection. Thus, we
specifically welcome and endorse the measures to strengthen and
improve the functioning of "special" Section 301. This trade
remedy is essential to our continued ability to encourage other
nations to improve their patent and copyright regimes.

20-YEAR TERM

Background:

A fundamental part of the effort to achieve improved
intellectual patent protection involved the application of a
uniform set of rules of patent term. The consistent United
States position over the years leading up to the final agreement
was to advocate a 20 year term from filing. This approach was
publicly articulated and supported by the patent community. This
initiative was aimed at increasing the period of patent term in
countries outside the United States. For example, this standard
was responsible, in part, for a decision by the Canadian
government to go to a 20 year term for pharmaceutical products.

It should also be noted that the 20 year term from filing
makes sense on an international basis because it reflects the
reality that the rest of the world operates on a first to file
system. Thus, it was not feasible for the United States to
propose that the rest of the world go to a 17 year term from
issuance.

Moreover, we understand the concern of the Administration
about so-called submarine patents that has led, in some
instances, to the issuance of a patent long after an application

407

has been filed that covers an emerging technology. Thus, we have
not been unmindful of the history or the motivations behind the
20 year from filing patent term.

Notwithstanding our understanding of the motivations of the
Administration with respect to a 20 year patent term from filing,
we have expressed serious reservations about the impact of such a
change in domestic law in certain fields, especially
biotechnology .

Specific 20 Year From Filing Patent Term Concerns :

The basic assumption this Administration and earlier.
Administrations used in advocating a 20 year from filing patent
term, is that if applications are processed within 3 years,

inventors will end up with a patent term at least as long as

if not longer than they obtain today. The key to this

assumption is that the processing time within the Patent and
Trademark Office and through the courts to exhaustion of all
possible appeals is less than 3 years.

As a part of the legislation to implement the GATT
agreement, the Clinton Administration has proposed that United
States law be amended to provide that inventors receive a patent

term of 20 years effective from the date of filing. This

proposal would change the current patent regime which provides
inventors with a 17 year term, starting at the time the patent
issues.

As the pendency of most patent applications is less than
three years, this proposal would actually lengthen the term of
most patents during which the patent owner can exercise
exclusionary rights. The PTO has forecast the average pendency
for biotechnology-related patent applications to be 20.5 months,
in early 1995. If these projections are correct, the proposal
could also enhance the actual term of many patents in the field
of biotechnology. Regrettably, however, this improvement does
not hold across the board.

The Administration's proposal could potentially result in a
shorter term of patent protection in at least three sets of
circumstances: (1) in an ex parte case that takes more than 3
years from its effective filing date to issue, without any appeal
being taken; (2) cases in which the interference proceeding takes
more than 5 years beyond an assumed 3 years in prosecuting the
case (the Administration's draft bill permits extensions for up
to five years for cases involved in interferences) ; and (3) cases
that take longer than 3 years to issue due to PTO Board appeals
(the Administration bill does not permit extension of patent term
due to delays arising out of the successful appeals regarding
patentability before the PTO Board of Appeals and Interferences;

408

but, the currently pending proposal permits extension - up to 5
years - for successful appellants to the Federal Circuit) .

Administrative Practice Issues:

Some biotechnology applications in front of the USPTO are
needlessly prolonged for reasons that are not under the control
of the applicant. This delay in issuance results in a cloud on
the property rights that prevents owners of many worthy
biotechnology inventions from obtaining the funding they need to
develop the invention for the market. In many cases, inventions
are simply abandoned. ^

'^ As one example of such unnecessary delay, the biotechnology
industry refers to the current U.S. restriction practice under
35 U.S.C. §121. Currently the corresponding provisions for
originally filed U.S., non-Patent Cooperation Treaty (PCT)-
filed applications are different from those applied to PCT-
filed applications. The PTO is to require restriction of non-
PCT-filed applications if two or more independent and distinct
inventions are claimed in one application. Common PTO
practice, however, is to consider restriction appropriate
where two joined inventions are either independent or distinct
despite the word "and" in 35 U.S.C. §121 and 37 C.F.R. §1.141.
In contrast, the provision on restriction practice for PCT-
filed applications is contained in PCT Rule 13, which permits
the inclusion in a single application of one or more
inventions, provided that the inventions are so linked as to
form a single general inventive concept. This single general
inventive concept requirement is met if there is a technical
relationship among those inventions involving one or more of
the same or corresponding special technical features.

For biotechnology inventions not filed through the PCT,
the current restriction practice may entail the filing of five
or more divisional applications when a new gene encoding a new
protein is discovered. For example, the PTO would typically
make at least a six-way restriction requirement as follows:
(1) the new protein, (2) the new gene encoding the protein,
along with vectors and host cells containing the new gene, (3)
an antibody binding to the protein, (4) a method of making
the protein, (5) a method of using the protein, and (6) a
method of using the antibody. This application could even
have more categories if there were more than one use of the
protein claimed.

Under the pending 20-year-term legislation, it behooves
the patent applicant to file any divisional applications on
restricted inventions as soon as possible, For example, if
any originally filed application is restricted in several

409

ways, unless the patent applicant wants a shortened patent
term for any divisional application, each of the corresponding
divisional applications should be filed as soon as possible
after the restrictions requirement is made final. Also, there
is a time lag between the original filing and the divisional
applications' filing, which again eats into the patent terms
of the divisional applications.

The optimal situation for the patent applicant would be
to have the PTO curtail restriction. Thus, examination of all
originally submitted claims would be conducted in one
application, rather than requiring that multiple divisional
applications be filed quickly enough after a restriction
requirement for them to issue with a "full" patent term left.
Another advantage is to negative the current PTO practice
which discriminates against applicants who do not file their
U.S. applications through the more expensive PCT procedure
(this affects mostly U.S. inventors and inventors who are not
in a reciprocal PCT country) . Further, it eliminates the
dilemma of applicants having to choose between abandoning
certain aspects of their invention or incurring the costs of
multiple applications, which is a real hardship on a fledgling
biotechnology company.

The most prevalent anticipated concern against such
revision is perceived detriments to the PTO if Examiners were
required to examine multiple inventions in a single
application for the cost of the original filing fee — the PTO
would lose additional filing fees from the divisional
applications and Examiners would face additional burdens.
However, currently the applicant can now choose the PCT route
and not have to file divisional applications, so the Examiners
are burdened already in many instances. Perhaps the PTO could
develop a fee schedule to obtain more fees for applications
with multiple, but linked, inventions.

After weighing all of the above factors, the AIPLA
Chemical Practice Committee has proposed and recommended that
the first paragraph of 35 U.S.C. §121 be amended and a new
second paragraph be added to permit the inclusion in a single
application of more than one invention, provided that the
inventions are linked by a general technical feature. [May-
June 1994, A.I.P.L.A. Bulletin, pp. 498-504, (1994)].

410

UTILITY PROBLEMS

As another example of such unnecessary delay, the
biotechnology industry points to the recent standard that the
USPTO has seemed to set for the applicant in order to satisfy
proof of utility of inventions that might be used in human
treatments. In the opinion of many members of the biotechnology
industry, the USPTO examiners have not only been unnecessarily
requiring human data per se, but also, in addition, have been
requiring data similar to that needed to pass an FDA review. The
cost of obtaining such data is simply out of the reach of many
small concerns in this industry.

The biotechnology industry questions whether the utility
standards set by the USPTO biotechnology examining corps are
appropriate or simply too high for a decision on patentability
per se - a decision that should only look to (1) whether there is
an invention and (2) whether the applicant deserves legal rights
in this invention, and not to whether the invention is ready to
market.

The utility requirement, generally a minor consideration in other
art groups, has become a major hurdle for biotechnology
inventions. ' Even minimal standards of utility are frequently
challenged in Group 1800 (Biotechnology) .

Patent Examiners are often basing their arguments on a
misinterpretation of the germinal utility decision of Brenner v.
Manson. 383 U.S. 519 (S.CT. 1966) . Brenner related to a process
for producing a known chemical compound whose utility had not yet
been evidenced. The Court rejected the applicant's argument that
the process for producing the product possessed utility simply
because a homologue of the product compound possessed utility.

' "The US Patent and Trademark Office (PTO) has stalled a
number of patent applications for biotech therapeutics by
demanding evidence from human clinical trials. The PTO must
be very careful not to grant patents based merely on ideas
of how a product might be useful. This would discourage
others from carrying out the costly work needed to develop
an effective therapeutic. However, patent examiners appear
to be holding biotech products to a higher standard than
they do conventional therapeutics. Excessive delays in
obtaining patents add to the already high degree of
uncertainty over the fate of particular biotech companies.
Any more uncertainty could dry up the stream of funds
investors have been pouring into the industry. The PTO will
hold a public hearing on the present condition of biotech
patent applications later this year." 14 GENETIC TECHNOLOGY
NEWS 1 (1994) .

411

Examiners have been citing Brenner as support for utility
rejections in instances where the specification discloses data
providing clear evidence of utility for the actual compound in
question. Brenner is considered inapplicable under such
circumstances .

The Courts have repeatedly held that minimal utility is
sufficient to meet the requirements of §101. For example, "...it
has never been a requirement for patentability that there must be
any particular degree of utility. . . . Absent proof of total
incapacity the defense of nonoperativeness or non-utility is not
available." In re Nelson. 126 USPO 242, 248, 250 (CCPA 1960),
citing Technical Tape Corp. v. Minnesota Mining and Mfg. Co. . 110
USPO 260 (S.D.N.Y.). See also In re Langer. 183 USPO 288 (1974),
(where the Court stated that any disclosure of utility within the
scope of the claims necessarily satisfies the utility requirement
unless the objective truth of the statement of utility is
questionable to one skilled in the art). Similarly, "...when a
properly claimed invention meets one stated objective, utility
under §101 is clearly shown". Carl Zeiss Stiftung v. Renishaw.
20 USPO 2d 1094, 1100 (Fed. Cir. 1991); see also Raytheon Corp.
V. Roper Co. , 220 USPO 592 (Fed. Cir. 1983).

Therefore, anv stated utility is enough to satisfy the
requirements of §101. Thus, drug compositions which have any
use, be it therapeutic or not, are useful under §101. If the
claims are drawn to therapeutic uses, then therapeutic utility
should be shown; however, for compositions, any utility should
suffice.

Similarly, the standard for utility does not include a
requirement of safety, a requirement (solely) of the FDA. In In
re Hartop 135 USPQ 419 (CCPA 1962), the court ruled that a drug
may be "useful" for patent law purposes even though it has not
been shown to be safe for use under the FDA.

A third area which is generating a lot of misunderstanding
concerns animal testing. The law is clear that testing in
"standard experimental animals" is acceptable to prove utility,
even if it "may eventually appear that the compound is without
value in the treatment of humans". In re Krimmel . 130 USPO 215,
219 (CCPA 1961) ; see also Ex parte Kreplka. 231 USPO 746 (BP
AI 1986) .

One should clearly distinguish between "utility" in the
patent sense, and "effective therapy" in the broader
pharmaceutical sense. To satisfy the utility requirement under
35 U.S.C. §101, the applicant need not demonstrate "practical
commercial utility", the language sometimes employed by examiners
in their utility rejections, but only that utility required in
the patent sense, as defined by the case law cited above.

412

tlECESSARY CHANGES

While we applaud the USPTO's interest in desiring to
play an active role in focussing patent law in the biotechnology
arena, nevertheless, we are certainly hopeful that the Patent and
Trademark Office is sympathetic to the fact that the proposed
change in the patent term will significantly increase the burden
on the USPTO to conduct its review of biotechnology applications
in an expeditious way.

Therefore, to minimize the impact of such a change in the
patent term, we recommend that the USPTO adopt an action plan
that would ensure that biotechnology patent applications would be
properly reviewed in a manner similar to that for other
industries, a manner that would not effectively reduce the 20
year patent term of patents in the biotechnology industry to one
significantly less than that provided by the current standard of
17 years from issue, due to factors outside the applicant's
control. Our recommendations for such an action plan follow.

First, we encourage USPTO efforts to commit itself to the
highest standards in training examiners to know and apply patent
law. When the patent term runs only from the date of filing, it
is crucial that the applicant's term not be compromised by the
applicant having to train the examiner.

Second, we encourage USPTO to continue applying its
commitment to the highest standards in the quality of the
examination of biotechnology applications. When the patent term
runs from the date of filing, it is crucial that the applicant's
term not be compromised by the applicant having to reargue
settled case law.

Third, we encourage the USPTO to take measures to ensure
that supervisory examiners have sufficient time to work closely
with everyone they supervise in every application, and especially
early in the review process. Such close supervision by
experienced supervisory professionals will minimize unnecessary
rejections and rounds of prosecution, and to expedite allowance.

Fourth, we encourage the USPTO to take measures to ensure
that all examiners are given sufficient time to review an
application and that the quality of the review be emphasized, not
the quantity.

Fifth, we encourage the USPTO to take measures to ensure
caseloads are evenly distributed among the examining groups, and
that examiners get proper time and credit for "coming up to
speed" on any case that is transferred to them. Currently,
examiners receive no time credit for reviewing the file history
of a case that has been transferred to them. This only

413

encourages the examiner to maintain the previous rejections, no
matter what the merits of the applicant's arguments are. As
having a case transferred to a new examiner is not something
under the applicant's control, the applicant should not be
penalized by unnecessary rounds of prosecution and the new
examiner should receive credit for the time spent in review.

Sixth, we encourage the USPTO's effort to further reevaluate
the "point" system used to grade examiners.

nrrERFERENCES AND APPEALS

As noted above, there are two other circumstances under
which an applicant can lose patent term under the proposed
implementing legislation--appeals and interferences. The
Administration's pending bill addresses both of these instances
by providing for an extension of term to compensate for delay.

The implementing bill in essence permits an extension of

time for up to 5 years for both appeals and interferences. This
is only fair. To limit patent term when there is a delay caused
by the Patent Office or by another party due to a rejection or
priority contest that has been successfully overcome by the
applicant would be unjust. Thus, to permit an extension of time,
in such circumstances, is an appropriate response. These
proposals meet the "fairness" test articulated by Commissioner
Lehman, in testimony on August 1, 1991 (when testifying before he
become Commissioner on the circumstances under which patent
extensions should be granted) .

There are two areas in which this language could be
technically modified that would make the legislation even more
positive. First, in the appeals section it would appear equally
equitable to include extensions for appeals within the Patent
Office. There is no principled distinction between judicial
appeals and administrative appeals when the delay has been caused
by the Patent Office and the applicant has prevailed. Second,
the effective date of the legislation should make clear that the
current rules (a 17 year term from filing) apply to all
applications that have a priority date before the implementing
bill goes into effect, including all continuations, CIP's, and
divisionals. This is especially important because investors have
reasonably relied on the current system of incentives in backing
expensive and time consuming research. This point is underlined
by the need to protect currently pending applications from being
forced into the new rules by the Patent Office through
continuations and divisional applications.

414

CONCLUSION

The pending GATT implementing bill is a substantial advance
in international trade. The removal of tariff barriers will
improve our economic well being. The TRIPS Agreement offers some
real improvements in the intellectual property regimes of our
trading partners.

We support the 20 year patent term from filing because
certain steps are being taken to reasonably assure that the
effective patent term is not less than exists today.
Specifically, we welcome the Administration's implementing bill
and its treatment of appeals and interferences, and the various
Statements of Administration Action on assured prompt and fair
treatment of biotechnology applications. We hope that certain
other technical changes in this language will be made during the
course of this process. Finally, we welcome the opportunity to
work with the Congress and Administration to review the actual
implementation of the proposed legislation over the next several
years to make sure that no effective patent term is lost to undue
administrative or judicial delays.

415

Appendix 8. — Testimoniy of Jerome H. Lemelson, Lemelson
National Program, August 12, 1994

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Program

TESTIMONY OF

JEROME H. LEMELSON

BEFORE THE SUBCOMMITTEE ON

INTELLECTUAL PROPERTY AND JUDICIAL ADMINISTRATION

COMMITTEE ON THE JUDICIARY

U.S. HOUSE OF REPRESENTATIVES

AUGUST 12, 1994

American invention and innovation far exceeds the creative output of any
nation on earth, and the nature of the U.S. patent system is largely responsible
for this astonishing track record. Fundamental to our patent system is the
notion that invention and innovation occur only in an environment that
stimulates coUegial interaction and rewards true creativity. Our patent system,
which grants patents to individuals and companies that originate new ideas,
products and processes, and provides protection to patentholders for 17 years
following the date of issuance, creates just such an environment.

American inventors and innovators know that even if it takes them years to
perfect their inventions and finance the costly process of filing for a patent;
even if it takes many more years for the patent office to issue that patent, they
are guaranteed 17 years of protection and 17 years of income from patent
royalties following issuance of the patent (assuming they are able to license or
commercialize their patents). Thus, American inventors and innovators can

416

freely dedicate themselves to the creative pursuit of their choice for as long as it takes to
achieve their objectives, inspired not only by the love of the "chase," but also by the real
prospect of compensation for their efforts.

For many years, U.S. patent rights were sacrosanct. During this productive period - from
the dawn of the industrial revolution until the economic collapse of 1929 -- American citizens
produced a harvest of inventions that made our nation an economic superpower.

But as corporate America grew, especially in the 1950s, enforcement of patent rights began
to decline. Big corporations saw patents granted to individuals or small companies as
frustrating impediments to their market domination ~ and judicial enforcement of U.S.
patents reflected this bias. Absent enforcement of patent protections, valuable American-bom
technology, American businesses and American jobs were lost to foreign competitors. As a
result, beginning in the 1960s and 1970s, the U.S. found itself on the losing end of the
balance of trade. Our failure to protect American patents had translated into failure to protect
the American economy.

Today, in efforts to recover our economic strength, we look beyond our borders — to the
development of the global economy. As we broaden and deepen trade relations around the
world, we negotiate agreements regulating those relations. U.S. negotiators of such

417

agreements -- specifically, the General Agreement on Tariffs and Trade -- have rightly
sought to obtain a strong worldwide patent system. Unfortunately, one provision being
discussed in the GATT implementation process would do the opposite ~ it would weaken the
U.S. patent system.

The unwarranted secrecy associated with development of GATT implementation language
makes it impossible to discuss, with any certainty, the content of that language. However, it
appears that proposed language calls for restricting the term of U.S. patents to a fixed 20
years from the date of filing, thereby effectively weakening U.S. patent protection.

Proponents of this proposal present it as a good faith effort to comply with the provisions of
GATT. In fact, it is a thinly-veiled attempt by multinational corporations to reduce American
patent protection — and to do so without an open, democratic process, by substituting fast-
track treaty approval on a vast array of GATT issues for informed debate focused on the
specific needs of the patent system.

What does GATT really require? GATT requires that patent terms run for a minimum of 20
years from the date of filing. "Minimum" is the operative word here. U.S. patent law offers
protection for 17 years from the date of issuance. Thus, while some change is required to
bring the U.S. into compliance with GATT, there is no need to reduce American patent

418

protection below current levels because meeting the GAIT minimum does not require us to
do so. Instead, the United States could comply just as well with GATT by strengthening its
patent laws to provide that:

1. Patents run a fixed 20 years from the date of issuance; or that

2. Patents are protected for 20 years from the date of filing or 17
years from issuance, whichever is longer.

Those supporting the fixed 20-year-term claim that it would eliminate so-called "submarine"
patents - patents that issue many years after the date of filing. They argue that independent
inventors deliberately bury their patents for years, only to surprise unsuspecting corporations
years later, attempting to capitalize on the subsequent success of those corporations in
commercializing products and technologies.

This position erroneously assigns the blame for delays in the issuance of U.S. patents to the
applicant. The fact is the problem lies with patent office procedures rather than with the
actions of applicants -- individual inventors or small businesses — or with the law as it now
stands. Inventors and innovators throughout the United States can relate a catalog of horror
stories that clearly demonstrate how the administrative morass of the United States Patent and
Trademark Office has inhibited their ability to bring new ideas and products into the
marketplace in a timely fashion.

419

Further, the notion that anyone would deliberately delay issuance of their patents for 40 or
20 or even 10 years defies all logic. How niany inventors and innovators are clairvoyant?
How many of them can be sure that their inventions will be worth more money decades
hence than they are right now? How many inventors and innovators are willing to starve for
years on the chance that they will be able to "cash in" later? And how many of them are
likely to have the resources or stamina to tangle with powerful, mature industries when they
could negotiate licenses with eager start-up companies right now? Why would anyone in their
right mind engage in so costly and risky a deceit?

The fact is that proponents of the fixed 20-year-term have yet to quantify the real impact of
so-called submarine patents, while those opposing the 20-year-term (the biotechnology
industry, many U.S. corporations, academic research institutions and independent inventors)
can clearly establish its potential negative impact. Given these arguments, responding to
those who decry so-called submarine patents and propose the 20-year-term is an unnecessary,
knee-jerk reaction that could have serious ramifications for an economy already under stress.

The goal of GATT negotiations was not to weaken U.S. patent protection. Rather, its goal
should be to strengthen patent protection in all nations, including our own, so that creative
people worldwide are stimulated to produce and rewarded for their creativity. GATT
implementation language should reflect this goal.

420

There is simply no viable reason to change the U.S. patent system in a manner to discourage
invention and innovation, which have stimulated America's rise to world economic
dominance. To the contrary, there is much to suggest that the United States needs the
economic stimulus afforded by this system now more than ever before. In the past decade,
entrepreneurial and start-up companies have created 20 million new American jobs. Today,
SO percent of U.S. exports are produced by companies with fewer than 20 employees.

The United States patent system, in its current form, is absolutely critical to the development
of these young, job-creating businesses. The object of this system is not to secure licensing
rights for the sake of mere protectionism, but to provide an incentive to capital formation, to
motivate investment in new products, processes and technologies. If the most valuable assets
of a business caimot be adequately protected fh>m theft by foreign or domestic intruders,
investors no longer will undertake the risky proposition of financing those businesses.

Weakening U.S. patent protection is precisely what our competitors are after. To win the
global economic competition, our trading partners want free access to U.S. technology -
unfettered by strong patent laws or the need to compensate American inventors and
innovators. With free technology, cheap labor and open access to U.S. markets, our
competitors will gain the advantage and cripple the American economy forever.

421

The U.S. patent system long has been one of our most fonnidable competitive advantages.
Can we afford to sacrifice it on the altar of compliance with GATT? Should we give it up
because we are urged to do so by other nations that view this advantage as a trade barrier?
How far are we willing to go to satisfy the interests of multinational corporations that operate
without loyalty to any one nation? How far are we willing to go to satisfy the interests of
nations with whom we compete for market share?

The potential risks and rewards of changing the U.S. patent system are far too critical to be
relegated to a fast-track process that short-circuits the conventional legislative process. We
must take the time to identify specific problems as to how we administer our system and
implement administrative changes that will solve those problems. We must examine the
interaction of patent law, international trade and domestic economic security in the light of
day and in the open halls of Congress.

1t»«

422

Appendix 9. — Memorandum From Neil Turkewitz, Recording
Industry Association of America, Inc., to Staff of the Sen-
ate Subcommittee on Patents, Copyrights and Trademarks,
and the House Subcommittee on Intellectual Property and
Judicial Administration, August 5, 1994

MEMORAWDigf

TO t Staff of S*nat* Subconnlttc* of th« Judiciary

Comnltta* on Patents, Copyrights and Tradamarks

Staff of tha Housa StU^connittaa of tha Judiciary
Committee on Intel Ifetftual Property and Judicial

FROM

SUBJECT

DATE

Adninistratio:
Nail Turkewitz
GATT Inplementat
August 5, 1994

In preparation for the upcoming hearing, and with a view
towards providing information to guide well-informed
decision-making with respect to GATT implementation, I am
taking the liberty of sending you a rather lengthy memorandum
outlining why we believe that it is so important to deal with
certain issues within the framework of GATT implementing
legislation. I hope that this is helpful, and I apologise for
its length.

Sound recordings occupy a very strange position in the
copyright system — both under US law and within the
international legal system. US law did not extend federal
copyright protection to sound recordings until 1972, and even
then only a limited form of protection to enable record
companies to fight piracy. International legal instruments for
the protection of sound recordings did not arise until 1961
(Rome Convention) and 1971 (Geneva Phonograms Convention) and
the standards contained in these Conventions are minimal. The
United States is one of only a handful of countries that view
sound recordings as "works" within the meaning of the Berne
Convention, and international obligations in respect of soxind
recordings are thus generally established by virtue of the
Rome and Geneva Phonograms Conventions, and now by
GATT/TRIPS. Both Rome and Geneva Phonograms have limited
adherence (45 & 51 respectively, compared to 105 for the Berne
Convention) . The protection of us sound recordings in foreign
markets is thus highly inadeguate — indeed currently
nonexistent in a great many countries.

tICOROINO INDUSTRY ASSOCIATION OV AMIRlCA, INC

1020NinttetnthStrt*t.N.W. ■ SuUt 200 • WashinglM, D.C 20036 ■ Hwnt: (Z02) 77^101 ■ Fax: (202) 77S.72S3

423

Meno: GATT linpl«n«nt«tion
August 5, 1994
page 2

This legal «nvironment will b« •ntirely tranofonn^d by
implementation of TRIPS by all GATT parties. By virtue of
GATT/TRIPS, US record companies and performers will enjoy
protection in essentially every country of the world (Note:
The copyright owners of musical compositions have a different
legal status, having been long recognized as "authors" of
"works" under the Berne Convention, and therefore currently
enjoy a high level of dg jure protection. The inability of
record companies to fight piracy, however, also directly and
proportionately negatively affects authors and composers) .
Bearing in mind that for most countries, TRIPS will be the
sole basis for determining international legal obligations, it
is critical that we properly and broadly define TRIPS
obligations.

One of the most critical of these obligations is
expressed in Article 14.6 that applies the rule of Article 18
of the Berne Convention to the rights of record producers and
performers, thus reversing the existing norm established in
both Rome and Geneva Phonograms that there was no obligation
to protect preexisting sound recordings. This was a major
achievement for US negotiators who had sought to end decades
long prejudice to the interests of the US music community.

Of course, the measure of practical success now
completely hinges on the meaning of Article 18. If the
possibility of determining "the conditions of application"
(Article 18.3) of the primary obligation contained in Article
18.1 permits a great deal of latitude, including a decision to
not apply the principle of retroactivity at all, then the US
victory embodied in Article 14(6) doesn't even rise to the
level of that of Pyrrhus . In fact, it will be more like
Sisyphus. US economic objectives are best served by securing
the narrowest possible reading of Article 18.3, and conversely
the broadest possible interpretation of the essential
principle of retroactivity contained in Article 18.1. It is
my hope that we will be successful in establishing the
proposition that there is little or no subjectivity in
interpreting the meaning of Article 18.

Let me return to the practical consequences of this
proposition. By virtue of GATT/TRIPS, US sound recordings
will be protected for the first time in as many as seventy
countries. Many of these countries are "economies in
transition" or "less-developed countries" that are excused,
under the GATT transition rules, from meeting their
substantive obligations until the year 2000. At that point,
unless we are successful in introducing a narrow
interpretation of Article IS. 3, we run the risk of leaving

424

M«ino: OATT Inpl*in«nt:ation
August 5, 1994
pa9« 3

unprotected all sound recordings produced prior to that date.
This is not an issue of whether "classic" recordings will be
protected — rather it Involves a determination of whether
recordings created in thjs century will enjoy protection
including those not yet created. This is an issue that US
negotiators currently face in all of their negotiations with
countries in Central and Eastern Europe, as well as in Russia
and the former republics which have not heretofore protected
Bound recordings. It is an issue of immense economic
significance to US record companies, artists and musicians.

The failure to protect preexisting sound recordings in
most of the world carries with it the potential of introducing
piracy on an unprecedented scale, while cassette tapes were
the pirate's medium of choice, mass exportation of pirate
material from a source country was unlikely given the ease of
entry into the pirate market by local entrepreneurs, and
pirates tended to supply their own domestic markets.
Inadequate levels of protection is one country did not
generally prejudice surrounding markets, although there were
some notable exceptions.

The introduction of compact disc and other digital
media, in conjunction with improvements in the infrastructure
for the distribution or transmission of recorded music, have
transformed this equation. CD pirates now open shop in the
country offering the lowest level of protection, invest
heavily in production equipment that permits the manufacture
of clones of legitimate product, and engage in export trade.
The quality of these reproductions limits or eliminates the
eUsility of Custom officials to protect borders, thus yielding
a situation where protection in any country, including our
own, is effectively set at the lowest common denominator in
the world.

This problem will be enormously compounded in the near
future when pirates, rather than manufacturing and
distributing pirate copies, can merely upload signals to a
satellite for distribution or can interface with networks
connected with global information infrastiructures and achieve
instantaneous entry into markets around the world. The fact
is that in some sense, the world is becoming a single market
in which piracy can not be limited territorially, and it is
critical that we secure significant harmonization of
protection at the highest level so that we can attack piracy
at the only point where success is achievable — at the
source. The first step in doing this is to secure a common
understanding of which works are protected.

425

K«mo: GATT lop 1 •man tat ion
August 5, 1994
page 4

Articl* 14.6 applying Article 18 of the B«rn« Convantion
to tha rights of racord producers and parfomeri, as well as
Article 18 itself, should form the basis of this common
understanding. If we are successful in establishing, by
virtue of example, that Article 18 requires all GATT parties
to protect wor)cs that are still protected in their country of
origin, we will have created an essential ground rule for the
21st century. This will permit US creators to both derive
benefits from the works that they have created, and provide a
basis for the continued vitality of some of America's most
productive and competitive industries.

While this measure will certainly have some negative
impact on certain individuals currently exploiting public
domain materials in the United States, and while their plight
is not altogether unsympathetic, it is necessary to recall
that these individuals are engaged in what we have termed
elsewhere, piracy. We should also bear in mind that the
proposed legislation would restore protection only to foreign
works not in the public domain in their country of origin
through the expiry of term, and that the universe of
recaptured works is thus minimized. The United States has
expended a great deal of effort in promoting the adoption and
enforcement of adequate and effective intellectual property
laws around the world. What we have demanded from these
governments is that they shut down piratical operations —
operations that until the moment of legislation are, like our
public domain merchants here, legal. Their "legality" has not
prevented us from correctly identifying these practices as
"piracy."

The United States has an obligation to live by the seone
rules that we demand elsewhere. Putting "pirates" out of
business in Thailand, China or Mexico places far greater
political and economic strains on those countries than does
the proposed measure here — particularly given that here the
consequence of taking a somewhat difficult step will be the
operation of additional revenue and jobs.

There is another, perhaps even more immediate and
critical, element of the existing Administration proposal for
GATT implementation concerning the establishment of a federal
anti-bootlegging statute. Article 14.1 of TRIPS requires
countries to provide performers with the ability to prevent
the unauthorized fixation and broadcast of their live
performances, as well as the reproduction of any such
fixations.

This provision plugs an existing gaping hole in the
international legal protection for performers that has
resulted in the denial of protection to US performers in much
of the world — including in many of our major trading
partners such as Japan, Germany and Italy. As a consequence
of this absence of protection, there is a worldwide trade

426

Memo: GAIT Inplanentation
August 5, 1994
pag* 5

amounting to billions of dollars par y«ar in bootlegs of
American performers. Not only ar« perfotTners and record
companies prejudiced economically, but they are denied the
opportunity to exercise artistic and quality control over
productions sold to the public. Given that this trade is
entirely "legal", catalogs prominently feature the
availability of such unauthorized fixations.

Whether GATT/TRIPS implementation around the world puts
an end to these discriminatory and unfair practices is largely
dependent upon how we interpret our obligations in respect of
Article 14.1 and Article 14.6 (applying the retroactivity
principle to the rights of performers established in Article
14.1). The establishment of a federal anti-bootlegging
statute that prohibits the unauthorized fixation and
transmission of live performances, as well as trafficking in
such articles regardless of where and when they were fixed,
will provide an unambiguous and broad message both about how
seriously the United States views such activities, and how we
interpret the TRIPS provisions in question.

This provision is also essential for us compliance with
Article 51 of TRIPS that requires countries to provide
measures for Customs interception of pirated goods. The
absence of a federal anti-bootlegging provision has
effectively prevented Customs from being able to take action
with respect to imported articles containing unauthorized
fixations of live performances. As a consequence, Customs
strongly supports the establishment of such a right embodied
in federal law.

Finally, let me point out that as far as T <un aware,
there is no domestic opposition to this measure. Its
embodiment in US law will have the effect of both improving
protection in this country and establishing a clear and
unequivocal basis for the protection of US performers in
overseas markets.

On the basis of the foregoing, I urge your support of
these measures within the frsunework of GATT implementing
legislation. Failure to secure these provisions, ironically,
will undoubtedly make many of our trading partners extremely
happy since it will amount to a license to continue pirating
our works. US legislation enacted on some future date that
does not permit the United States to meet its obligations
under gatt/TRIPS within the time frame contemplated by that
Agreement, will not, unfortunately, undo the damage.

Best regards, and please let me know if I can be of any
further assistance.

427

Appendix 10.— Testimony of Richard R. Mybeck, Esq., Patent
Attorney, Scottsdale, AZ (With Attachments), August 12,
1994

WRITTEN TESTIMONY OF RICHARD R. MYBECK, ESQ.

BEFORE THE SUBCOMMITTEE ON INTELLECTUAL PROPERTY

AND JUDICIAL ADMINISTRATION

COMMITTEE ON THE JUDICIARY

U.S. HOUSE OF REPRESENTATIVES

AUGUST 12, 1994

I am a Registered Patent Attorney currently practicing in
Scottsdale, Arizona. I have practiced before the United States
Patent and Trademark Office for 41 years. I am also admitted to
practice before the Bar in the States of Indiana, Wisconsin,
Illinois and Arizona. My experience includes 28 years in corporate
practice, including 19 years in the pharmaceutical industry.
During my 13 years in private practice, I have been the principal
patent and trademark attorney for Arizona State University, a
"Class One" research institution, located in Tempe, Arizona. In
that role, I prepare, prosecute, maintain U.S and foreign patent
applications and patents for various faculty and staff persons
through the auspices of the Office of Technology Transfer. The
goal of that operation is to facilitate the utilization of
university research and technology in the promotion of industry and
employment, especially in Arizona, and in so doing, to provide a
revenue stream that rewards the participating inventors, their
departments and schools and which provides funds to accomplish
beneficial but unsponsored research in the future.

428

I am testifying because I believe that I can provide useful
information about what actually happens during patent prosecution
and the adverse impact some of the alternative patent-term
proposals would have on the protection of university-generated
research.

Impact on Efforts to Protect Universitv Research
The issue of the patent term is particularly important to
university research, because university inventions are generally
more basic or visionary and are less likely to reach
commercialization quickly. Therefore, shortening the patent term
will disproportionately harm university researchers.

Foreign businesses, particularly the Japanese, have been
enormously successful in making profits from commercializing basic,
often unpatented research done at U.S. universities. Such efforts
return nothing to the universities or the U.S. economy.

In recent years, universities in this country have been
attempting to improve their protection and preserve their
investment (or the investment of the government) in research by
better protecting their intellectual property. That trend has seen
more frequent filing of patent applications by universities and a
stronger effort to license the resulting patents to businesses.
Many such licenses involve royalty return over the life of the
patent. However, the proposal currently being suggested with

429

regard to the patent term is likely to reduce the life and hence
the royalty income from the patents that issue.

Tampering with the term at this time in the manner proposed
would have a particularly negative impact on University research
because the current attitude at the Patent Office requiring living
experimental data for therapeutic substances has forced the
University to frequently refile its applications to obtain time to
accumulate the demanded data. Obtaining such data is both time-
consuming and dollar-intensive. Sometimes, even a second and a
third continuation is required because the shortened time limits
and oppressive fee schedule for extensions provides no practical
alternative when the sole source of funds to support the work is
often the public taxpayer.

Frequently, when a patent issues, particularly in the
therapeutic field, the University has been successful in obtaining
licensees, who for the life of the patent, agree to obtain
governmental approvals and market the product, paying the
University a royalty. Under the current system, the University has
several years to recoup its investment, fulfill its commitment to
the inventors and their department and, hopefully, generate revenue
to fund other projects.

Under the proposed change, the University will have fewer
years to recoup and the term can be even further reduced if a

430

particularly burdensome regulating process (e.g., F.D.A.) is
encountered before commercialization can be effected. I estimate
that, for some University projects, the term of actual protection
could be shortened to 13 years or even less.

As a result of my concern over the 20-year proposal, I
introduced a resolution at the annual meeting of the Intellectual
Property Section of the State Bar of Arizona, which is an
organization of patent lawyers and litigators. The Section
unanimously approved a resolution opposing a straight 20-year term,
a copy of which is attached to this statement. The resolution
provides further explanation of the impact on university research.

Why the Proposal Would Shorten Patent Terms in Some Cases
Although changing from the present 17 -year term to the
proposed 20-year term sounds like the patent term would be
lengthened, the proposal would actually shorten the term of
protection in many instances. The proposed 20-year term would be
measured from filing date, not from issue date. Also, the proposed
20-year term would be measured from the earliest effective filing
date that is, the date of any related parent application.

In a great many cases, the time it takes to prosecute a patent
in the Patent Office measured from the earliest filing date to the
date of issuance of a patent is longer than three years. In those

431

cases, the enforceable term would be reduced by the proposal, not'
lengthened. The reasons for such delay are discussed below.

The Patent Office frequently relies on statistics indicating
that it has reduced the average pendency of applications to about
18 months. However, those statistics are meaningless, because they
include applications which have been abandoned and never issue, as
well as applications which are abandoned after they have been
refiled. Furthermore, many applicants abandon applications for
non-legal reasons, such as lack of money. Also, refiled
applications may issue as a patent, but after an even longer "delay
time" in the Office.

Ironically, it is my understanding that GATT was intended to
strengthen worldwide patent protection, not to weaken protection in
the United States, either by dealing with the problem of "submarine
patents" or by any other means.

Alternatives That Would Comply with GATT
Other alternative patent terms have been proposed to comply
with the GATT treaty which would not reduce the enforceable term of
U.S. patents in any instance.

First, it would comply with GATT to simply change our the
present 17-year term to a term of 20 years from issuance.

432

Second, it would comply with GATT to keep the present 17-year'
term but add a phrase indicating that the term would be extended in
any case in which the patent issues quickly. In other words, the
term could be "...17 years from issuance or 20 years from earliest
effective filing date, whichever is longer...".

I believe that either of those alternative proposals would be
more suitable than the proposed 20-year term from filing date. The
17/20 combination term seems the easiest to implement and would
require the least change to the patent law.

The Argument About "Submarine" Patents
Proponents of the 20-year term suggest that an important
advantage of that option over the other alternatives would be to
reduce the incidence of so-called "submarine" patents, that is,
those applications which mature into a patent long after an
industry has developed. Proponents argue that inventors often seek
to "hide" patents in the application process by delaying issuance,
hoping to gain royalties later.

I have never observed any instance of such intentional delay
and in 41 years have read of only two. I also believe that abusive
cases can be and are being largely handled through exxsting Patent
Office regulations and court decisions. For example, the case of
In re Bogese. 22 U.S.P.Q.2d 1821 (Comm'r of Patents 1992),
illustrates an array of procedural remedies available to the

433

Commissioner when an applicant repeatedly refiles without'
substantive prosecution: The Patent Office issued a first final
rejection, imposed a 30-day shortened response time on applicant,
and warned the applicant that further refiling might result in
application of the doctrine of laches and be considered a special
circumstance allowing the Commissioner to publish the subject
matter of the application under Section 122 of the Patent Act.

If there are specific instances that existing rules cannot
handle, then new rules can be implemented. However, it is
inappropriate to reduce the term of patents to less than 17 years
from issue in an effort to block a few instances of abusive
practice.

Also, as noted below, most of the patents which issue after a
long delay are not cases in which the inventor deliberately delayed
prosecution. Rather, even with diligent prosecution, most of the
delay arises from the way in which the Patent Office examines
applications. Indeed, the opportunities for applicants to
introduce delay are few indeed.

Examples of Delays in the Patent Office

I have observed many cases in which there have been undue

delays in prosecution because of the way applications are processed

in the Patent Office. I have spoken with a few of my colleagues in

Arizona and compiled the following discussion of types of delay,

434

citing certain example cases. Such types of delay are not unique,
difficult to locate, or unusual. The types of delay are presented
in rough order of when during the process the delay occurs.

When an application is first filed, there is a delay of
usually about a year before the application is examined. However,
the delay varies considerably among examining groups, and in some
instances, the delay can be considerably longer.

When a continuing or divisional application is filed, the
Patent Office rarely considers the new case more quickly than an
original application. Thus, when a new case must be filed, there
is a considerable probability that there will be a second delay
period.

Some cases in the Patent Office, particularly those in areas
of research that are considered critical, can be made "special,"
and the Patent Office promises faster consideration. However,
frequently such "special" cases are not tagged by the Office for
faster treatment or are tagged for faster treatment but not
identified as "special" in the computer dockets or for other
reasons are not actually handled more expeditiously. In one case,
the request to make a case special caused the case file to sit on
the desk of a reviewing Patent Office official for over a year,
thereby delaying examination longer than usual.

435

When the examination does begin, the Patent Office has'
increasingly begun to issue non-substantive first rejections. It
is my belief that the Office hopes to "weed out" some of the
applications, particularly those for inventors that do not have a
great deal of resources.

One frequent type of non-substantive first action is a
"restriction requirement," in which the Office says that the patent
must be divided up into two or more applications. That causes the
applicant to file a new case with the claims that are "divided out"
of the original application. Although the divisional application
can be filed at any time during prosecution of the parent, most
inventors will wish to wait until the first case is examined
substantively. Under the proposed 20-year term, such cases will
issue with shorter terms of effective protection.

Although examiners are supposed to call attorneys to get an
immediate response to restriction requirements, frequently they
will issue a formal paper, which puts the ball back in the
inventor's court temporarily and allows the examiner a fresh period
of time to issue another response. Unfortunately, such a paper is
counted as an "action" in the Patent Office's quota system.

Another increasing type of non-substantive first action is a
rejection for lack of "enablement" or lack of patentable subject
matter. Those types of actions are quick for the examiners to

436

issue, but allow the examiners to avoid conducting a search for
prior patents or publications that would substantively block the
application. Obviously, the examiners must enforce all provisions
of the patent law, but it is increasingly the case that they rely —
often without good basis — on the provisions that take the least
time to apply.

Although examiners are supposed to enter all types of
rejections in the very first action, including rejections based on
prior references, they frequently do not do so. The use of
different types of rejections in series substantially delays the
issuance of many patents.

In cases in which the application is a continuation or
division of a parent application, examining practice requires the
examiners to review the parent cases. However, most often, it
appears that they do not do so. Therefore, many continuations
require a process of re-education of a new examiner in what
happened in the parent cases, which also causes delay.

After the first action and the response thereto, the examiner
will reconsider the case. Such reconsideration sometimes occurs
two or three times. However, in many cases, it seems as if the
examiner has not actually read the response to the previous
rejection. Quite often, an examiner will simply repeat his

437

position in a new rejection and provide no real response to the
rebuttal made by the applicant in the request for reconsideration.

In many instances, to get an examiner to reconsider the case
with some real thoughtfulness, it is necessary to conduct an
interview or even file an appeal.

Many of the above examining problems arise from the ill-
advised "quota system" that the Patent Office imposes on its
examiners. Examiners have a very short period of time to act on
any single application, and they often meet those deadlines by
acting in the non-substantive ways described above. Such a system
prevents the issuance of some valid patents, but it also frequently
results in the delayed issuance of other patents.

The Patent Office has attempted to accelerate issuance by
mandating that, in most instances, no more than one request for
reconsideration can be made before a rejection will be made
"final." While the intent of that proposal was to accelerate the
examination process, in many cases it actually delays matters,
because it requires that the applicant file a continuation to
obtain the thorough examination he or she should have received on
the initial filing.

Another frequent reason for continuation filings is the
insistence of certain examiners on overly narrow claims. That

438

circumstance puts the applicant in a dilemma: Either the applicant
must allow the narrow claims to issue and file a continuation with
the broader claims, which will thus be delayed, or the applicant
must delay issuance of the allowed claims while the broader claims
are argued on appeal.

There is very little chance for an applicant to delay matters
in response to an action by the Office — the time deadlines are very
strict, and the cost of purchasing short extensions is very high.
However, when an examiner delays for some reason, there is no
penalty.

For example, the inventor has two months after a notice of
appeal is filed to file an appeal brief, and the examiner has two
months after the appeal brief to file an answer. If the inventor
misses the two-month deadline, the case will become abandoned. If
the examiner misses the same deadline, however, nothing will
happen.

One of my colleagues had a case in which an examiner took six
months to respond to an appeal brief, and then the response was
only to reject the brief for failure to follow a particular rule.
The brief was submitted a month later, and the examiner took more
than another six months to respond.

439 I '

Another local attorney in this area has a case in which an'
^^ examiner wishes to declare an interference, but the declaration has
been delayed for over a year because the case file of the other
patent has been lost. I have had cases in which examination has
been substantially delayed or procedural complexities introduced
because the Office has lost files of parent cases.

When an appeal is taken, there is usually a few month lag
between the time that the briefing is completed and the time that
the case is transmitted to the Board of Appeals. When it gets
there, there is a lag of about a year before the Board will decide
the case. If the applicant requests an oral argument, appeals take
even longer.

Even without a further appeal outside the Patent Office, it
will take about one to three years for an appeal to be completed.
If the 20-year proposal is accepted, any patent that issues after
an appeal will have a substantially shortened life. That is
particularly unfair because the shortened term will be the fault of
the Patent Office and no fault of the inventor — because the only
cases that issue as a patent after appeal are those in which the
examiner's rejection is found by the Board to be wrong and is
reversed!

The situation is even worse for appeals to the court system.
If the examiner and the Board of Appeals both reject the patent,

440

but the courts must tell the Patent Office that the rejection was
unwarranted, then the patent owner will lose even more years from
his term.

Another source of delay on appeal is the Board of Appeals'
decision to introduce new grounds of rejections in many cases.
Rather than relying only on the rejections issued by the examiners,
the Board will often reverse the examiner's ground of rejection but
apply a new one. That causes further delay in obtaining a patent,
if the inventor is able to submit evidence, amendments, or
arguments to overcome the new ground.

The extreme delays that result when interferences are declared
are well known. Hov/ever, it is important to understand that
interferences are infreguent and do not provide the only reasons
for lengthy delays.

Even after a patent is finally approved, it usually takes
between three and four months for the Office to have its contractor
actually print the patent. That delay, too, would count against
the patent owner's term of protection, under the proposal.

Every attorney has "horror stories" of particular cases in
which one or more of the usual delay periods discussed above has
been amplified unduly. However, the point is that there is a
certain fraction of cases in which the delay caused by the patent

441

application process results, through no fault of the applicant, in'
a patent that issues long after first filing.

The 20-year term will only worsen the problem of Patent Office
delay, because there will be an incentive for examiners to delay
until any tough issues presented by a long-pending application
become moot, either because the 20 years have expired or because
the inventor gives up the fight because the shortened term he or
she would obtain is not worth the cost and effort.

The new proposal would punish those applicants who already
bear the brunt of such delays.

Moreover, there is no reason to believe that the Patent Office
or its contractors will act even as quickly as they do now. For
example, the continuing tight federal budget makes it likely that
the Patent Office will be the subject of a budget cut at some time
in the future. When cuts occur, delays will likely increase. If
that eventuality occurred, through circumstances far outside of
applicants' control, the patent term would be shortened.

Summary
Implementing a flat 20-year from filing date patent term would
harm American competitiveness, particularly by damaging the

opportunity of universities to better protect their innovations,

i
some of which are supported by Federal or State research grants.'

442

Shortening the patent term for a large percentage of patents will
cause more problems that the perceived problem of "submarine
patents" causes now. The 20-year proposal flies in the face of the
realities of Patent Office prosecution, ignoring the harm that will
inevitably occur to inventors from Patent Office delays of the
sorts mentioned above. The "17/20" alternative would comply with
GATT but would avoid such problems.

\ Cx^^-^wo-^^ ^-

443

SmiEBAR^S-
0/ ARIZONA

BENNETT EVAN COOPER
(fi02) 257 6217

August 4, 1994

VIA FEDERAL EXPRESS

Janis C. Long, Majority Counsel
Subcommittee on Patents,

Copyrights & Trademarks
Coinmittee on the Judiciary
United States Senate
227 Hart Building
Washington, D.C. 20510

Jarilyn Dupont , Counsel

Subcommittee on Intellectual Property

and Judicial Administration
Committee on the Judiciary
United States House of Representatives
207 Cannon House Office Building
Washington, D.C. 20515

Re: State Bar of Arizona Intellectual Property Section
Proposed Changes in Patent Term Under GA.TT

Dear Ms . Long and Ms . Dupont :

This letter concerns the enclosed resolution of the
Intellectual Property Section of the' State Bar of Arizona, adopted
in response to proposed changes in Che term of utility patents
intended to harmonize the United States patent laws with the
General Agreement on Tariffs and Trade. This resolution should
have been forwarded to you in late June, but was delayed as the
result of a clerical error. We apologize for any inconvenience
this may have caused.

At the Annual Meeting of the Intellectual Property
Section on June 11, 1994, the members of the Section in attendance
unanimously adopted the enclosed resolution in opposition to
proposed changes in the term of utility patents under Title 35 of
the United States Code to the extent that auch changes might result
in the term being less than 17 years in some instances . The
resolution was introduced by the patent counsel to Arizona State
University, who is a mennber of the Section. The Section does not
in principle oppose a patent term of 20 years from the date of
filing of the patent application, as GATT requires, so long aa the

444

Janis C. Long
Jarilyn Duponc
August: 4, 1994
Page 2

scacuce ia amended to provide expressly chat in no event shall the
term be less than 17 years from the date of issuance of the patent.

This resolution represents the position of the
Intellectual Property Section, which is the only unit of the State
Bar of Arizona directly concerned with the administration of the
patent laws. For that reason, and in light of the short time frame
for consideration of GATT-related changes, this resolution has not
been submitted to or considered by the State Bar of Arizona Board
of Governors for adoption as the position of the State Bar as a
whole .

If you have any questions concerning this resolution,
please do not hesitate to call me.

Sincerely youra

Bennett Evan Cooper
Immediate Past Chair
Intellectual Property Section
State Bar of Arizona

BEC:df
Enclosure

445

STATE BAR OF ARIZONA
INTELLECTUAL PROPERTY SECTION

WHEREAS Title 35 of the United States Code currently provides that the term of a
utility patent shall be seventeen years from the date of issuance ot the patent; and

WHEREAS that term serves the interests of the people or the United States, including
the people of the State of Arizona, by guaranteeing to patentees seventeen years from the date of
issuance of the patent during which to exploit the patent commercially, and thereby providing
crucial incentives to scientific research and development that benefit the people of the United States;
and

WHEREAS universities and other scientific research organizations frequently are
unable to develop interest among commercial organizations in exploiting inventions commercially
until one or more patents on the inventions have issued; and

WHEREAS universities and other scientific research organizations frequently condua
research and development as to pioneering technologies and other inventions that may not be
commercially exploitable until many years into the patent term; and"

WHEREAS a patent often is not issued by the United States Patent and Trademark
Office until more than three years after the date of filing of the patent application, for causes not
attributable to and beyond the control of the applicant; and

WHEREAS limiting a patents term to twenty years from the date of filing of the patent
application, without regard to when the patent issued, may result in the actual term of the patent
being substantially shorter than seventeen years, and may thereby hinder universities and other
scientific research organizations in exploiting the fruits of their research and development effons,

IT IS HEREBY RESOLVED by the Intellectual Property Section of the State Bar of
Arizona, by and through a unanimous vote of its members assembled at the Annual Meeting of the
Seaion on June 1 1, 1994, m Tucson, Arizona, that the proposed change in Title 35 of the United
States Code pertaining to measuring the life of a patent from the date of tiling rather than from the
date of issuance, would be against the public interest of the people of the United States in general,
and against the interest of the people of the State of Arizona, including Arizona State University and
the University of Arizona, in ongoing research and development that would be adversely impacted
by the proposed change; and, therefore, that the current term of seventeen years from the date of
issuance should not be diminished.

STATE BAR OF ARIZONA
INTELLECTUAL PROPERTY SECTION

By_^

^y^^l^.-..^^^<^ — C^' /*■ -^

Bennett Evan Cooper ''
Chairman

446

Appendix 11. — Letter From Thomas E. Smith, Chair, American
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SECTION Of INTELLECTUAL
PROPERTY LAW

750 N. Lake Shore Drive
Chicago, Illinois 6061 1
31 2/S8R-5598
FAX: 312/488-5500

September 15, 1994

The Honorable Dennis DeConcini

Chairman

Subcommittee on Patents, Copyrights and Trademarks

Committee on the Judiciary

United States Senate

SH-327 Hart Senate Office Building

Washington, D.C. 20510

Re: GATT Implementation - DeConcini S.2368 and H.R. 4894

Dear Senator DeConcini:

This statement is presented on behalf of the Section of Intellectual Property
Law of the American Bar Association, representing more than 13,000 lawyers in the
field of intellectual property law and practice in the United States. The views
presented herein are the views of our Section and have not been j^roved by the
ABA House of Delegates or the Board of Governors.

We appreciate the opportunity to comment on the provisions for implementing
the TRIPS provisions of the Uruguay Round of the GATT provided by your
introduction of S.2368.

H.R. 4894 introduced by Congressman Hughes containing provisions for
implementing the copyright requirements in the GATT Agreemait and a Hughes
Discussion Draft (2)-Trademark/Patent Provisions for GATT dated August 10, 1994
(hereinafter Discussion Draft (2)) for implementing the trademark and patent
requirements of the GATT Agreement appear to contain provisions generally similar
to those in S.2368. The Hughes bills appear to address some drafting problems in
S.2368 and make some substantive changes especially in the provisions relating to the
term of a patent. Therefore, our comments are directed not only at the provisions of
S.2368 but also at the provisions of H.R. 4894 and Discussion Draft (2).

447

The Honorable Dennis DeConcini
September 15, 1994
Page 2

With regard to Sections 2 through 4 of the bill pertaining to software rental and bootleg
sound recordings, the Section has adopted a resolution (quoted below) supporting the TRIPs
provisions of GATT and by implication supporting those changes in domestic law which are
necessary to implement TRIPs. Since we deem Sections 2 through 4 as generally necessary for
the implementation of the TRIPs provisions of GATT, we support those sections of the bill.

With regard to Section 5 of the bill pertaining to the restoration of copyrights in certain
works, our Section has not taken a position with regard to the specific matters addressed by this
section of the bill, and therefore the Section neither supports nor opposes Section 5 of the bill.

Trademark Provisions in the Bill

Section 6 of S.2368 amends Section 45 of the Trademark Act (15 U.S.C. 1127) to
implement the agreement on TRIPs in Uruguay round of the GAIT. It increases to 3 years the
period of time of non-use that is prima facie evidence of abandonment.

We support Section 6 of S.2368. The Section has historically supported inclusion in the
International Convention provision for cancellation of trademark registrations on the grounds of
abandonment of the trademark in a member country and has also favored the provision that non-
use of the registered trademark for a period of 2 years in the country constitutes presumptive
evidence of abandonment, which is the period presently specified in the Trademark Laws of the
United States. In January of 1994 the Section went on record as favoring implementation of the
intellectual property rights provisions of GATT which contains language virtually identical to the
language of S.2368 relating to abandonment. This resolution reads as follows:

RESOLVED, that the Section of Intellectual Property Law favors in principle the
inclusion in a multilateral trade agreement of strong provisions by the adequate and
effective protection and enforcement of intellectual property rights in countries party to
the agreement; and Specifically, the Section approves in general the Agreement on Trade-
Related aspects of intellectual property rights including Trade In Counterfeit Goods
(TRIPs) included in the Final Act embodying the Result of the Uruguay Round of
Multilateral Trade Negotiations dated December 15, 1993. (456-1 1/94)

Section 7 of S.2368 amends Section 2 of the Trademark Act of 1946 (15 U.S.C. 1052(a))
by prohibiting the registration of misleading geographical indications for wines and spirits.

We support Section 7 of S.2368. In 1979 the Section went on record as opposing any
prohibition on the use of geographical indications or their registration as trademarks except where

448

The Honorable Dennis DeConcini
September 15, 1994
Page 3

such geographical indications would mislead the public as to the true country of origin. We
believe that these conditions are met in Section 7 of S.2368 and therefore support this section.

Patent Provisions in the Bill

Section 8 of S.2368 amends Section 104 of title 35, United States Code, to implement
Article 27 of the Agreement on TRIPs in the Uruguay Round of the GATT. It enlarges the class
of countries in which acts may be relied upon to establish a date of invention. According to
Section 8, acts may be relied upon in WTO Member countries as well as NAFTA countries.
Section 8 is effective one year after the date of entry into force of the WTO Agreement. An
applicant for patent, or a patentee, may not establish a date of invention that is earlier than one
year after the date of entry into force of the WTO Agreement by reference to knowledge or use,
or other activity, in a WTO Member country, except as provided in 35 U.S.C. §§1 19 and 365
where the priority of an earlier foreign application is claimed. Section 7 of Discussion Draft (2)
makes essentially the same changes as those in Section 8 of S.2368.

We support Section 8 of S.2368 and Section 7 of Discussion Draft (2). Our su{^rt is
subject to our understanding that this amendment will permit the use of activities outside the
United States in a WTO Member country only to obtain or maintain a patent, and not for the
purpose of establishing prior art under 35 U.S.C. §102 outside the context of a priority dispute
between interfering parties or outside the context of preventing more than one patent to issue to
different parties for the same invention. Our support is also subject to our understanding that
Section 8 will cause the discovery provisions in 35 U.S.C. §104 to be rigorously i^lied to
discovery from both parties and nonparties in WTO Member countries, to fully protect the
interests of parties requesting information in WTO Member countries. The IPL Section believes
that it would be desirable to incorporate these understandings into the legislative history so that
it is clear that they represent the understandings of the Congress. We recommend that the Senate
and House Reports on the final GATT implementing legislation reflect these understandings.

Our support for Section 8 of S.2368 and Section 7 of Discussion Draft (2) is based upon
the following resolutions adopted by the Section of Intellectual Property Law at its mid-winter
meeting in January, 1994:

RESOLVED, that the Section of Intellectual Property Law favors, in principle,
implementing Article 27 of the Agreement on TRIPs in the Uruguay Round of the General
Agreement on Tariffs and Trade (GATT)

(i) by amending Section 104, Title 35, U.S.C, to enlarge the class of countries
in which acts may be relied upon to establish a date of invention, from NAFTA
countries to those countries that have agreed to be bound by the Agreement on TRIPs;
and

449

The Honorable Dennis DeConcini
September 15, 1994
Page 4

(ii) with an effective date provision analogous to that contained in the NAFTA
implementing legislation, so that the increased ability to prove a date of invention
applies only prospectively.

RESOLVED, that the Section of Intellectual Property Law favors, in principle,

(i) clarifying that Section 104, Title 35, U.S.C, as amended to implement both
NAFTA and the Agreement on TRIPs, permits the use of activities outside the United
States to establish a date of invention only to obtain or maintain a patent, and not to
establish prior art outside the context of a priority dispute between interfering parties
or permit more than one patent to issue to different parties for the same invention;
and

(ii) in particular, incorporating such clarification into the legislative history of the
TRIPs implementing legislation.

RESOLVED, that the Section of Intellectual Property Law favors, in principle,

(i) clarifying that the discovery provision of Section 104(a), Title 35, U.S.C, is
intended to be interpreted rigorously, so that the drawing of adverse inferences is
sufficient to protect those persons who request information from nondisclosure by
both parties and nonparties; and

(ii) in particular, incorporating such clarification into the legislative history of the
TRIPs implementing legislation.

Section 10 of S.2368 and Section 8 of Discussion Draft (2) would change U.S. patent laws in
the following respects. In summary:

1. they would provide a general patent term of twenty (20) years measured from the
U.S. filing date, excluding any claims of priority under §1 19; and

2. they would provide for extending the patent term under some circumstances to adjust
the term to compensate for delay attendant to certain official actions.

The ABA has long favored a general U.S. patent term of twenty (20) years measured from
the U.S. filing date as opposed to the U.S. issuance date. In addition, the IPL section has also
favored a minimum twenty (20) year patent term from the U.S. filing date. The history of
expression of such favorable views by the ABA and the IPL section runs as far back as 1939.

It is particularly worthy of note that those views were affirmed last year after extended
careful study by a Special Committee on Harmonization chaired by former Commissioner of
Patents, William E. Schuyler, Jr. The Special Committee rendered an extensive report and
recommendation to the full IPL Section which acted on the report at the annual meeting of the
Section in August, 1993. Attached hereto for your records are the relevant past actions of the

450

The Honorable Dennis DeConcini

September 15, 1994

Pages

ABA and IPL Section, and the recent relevant resolutions of the Section resulting from that
Special Committee which were approved by the IPL Section last year.

It is to be noted that the strong sentiment reflected in these resolutions is in favor of a
twenty (20) year patent term measured from filing date of the original application, with
appropriate extensions of patent term under selected circumstances. Notably, the Section has not
indicated any support for measurement of patent term fix)m issuance date of the patent. Indeed,
one particular resolution specifically considered whether the patent term for a continuation-in-part
application should be based upon the filing date of the new matter added to the continuation-in-
part application, as opposed to the filing date of the original application to which such new matter
was added. The result of the vote on that resolution clearly affirmed the desire of the IPL
Section that even in the case of a continuation-in-part application, the resulting patent term should
be based on the filing date of the original application, not the later application containing the new
matter.

On the basis of this set of resolutions and the long history of support of the ABA and the
IPL Section for patent term based upon filing date as opposed to issuance date, the general
support of the IPL Section for the relevant provisions of the current GATT implementing
legislation is clear. It may be that there are particular provisions within the legislation (such as
patent term extension for delays due to judicial review) for which there is no specific present
ABA or IPL Section resolution. However, the clear thrust of the body of resolutions is
supportive generally of the provisions in the current GATT implementing legislation in regard
to patent term.

Further, the IPL Section supports the implementation of GATT by the adoption of a
provision under which the term of a patent normally ends twenty years from the earliest U.S.
filing date, ultimately as a substitute for the 17 year term measured from the date of grant, rather
than as a minimum term provision added to the existing 17 year term from grant, when pre-grant
provisional rights are made available.

The attachment comprises these resolutions:
1939 SP 22-ABA 1939
1942 SP 23-ABA 1942
1966 SP 49-ABA 1%7-Rl
1978 SP 45-Rl
1980 101-3

1990 102-5

1991 108-4

1993 SCH-Twenty-Two-IA
1993 SCH-Twenty-Two-2A
1993 SCH-Twenty-Two-3A
1993 SCH-Twenty-Two-4Az

1993 SCH-Twenty-Two-5A

1994 103-5 (1/94)

451

The Honorable Dennis DeConcini
September 15. 1994
Page 6

Section 9 of S. 2368 and Sections 8 and 9 of Discussion Draft (2) also amend Sections 154
and 271 and other sections of titie 35, United States Code, to expand the acts which constitute
the infringement of a patent. Specifically, under these provisions infringement would also
include offers to sell and importations of the patented invention into the United States. Further,
S.2368 and Discussion Draft (2) make conforming amendments to the intervening rights and
other provisions of the patent law where the various existing acts constituting the infringement
of a patent are set forth or referenced. The changes in the acts constituting infringement in
Section 9 of both S.2368 and Discussion Draft (2) take effect one year after the date of entry into
force of the WTO Agreement.

We support the addition of offers for sale and importation into the United States as acts
of infringement in Section 9 of S.2368 and Sections 8 and 9 of Discussion Draft (2). Our
support for this change is based on the following resolution adopted by the IPL Section at its
mid-winter meeting in January, 1994:

RESOLVED, that the Intellectual Property Law Section favors, in principle, a
simple, limited amendment of 35 U.S.C. § 154 and § 271 to provide that making,
using, or selling or offering for sale or importing the subject matter covered by a
patent constitute the rights granted by the patent and the acts which constitute
infringement of a patent.

While this IPL Section resolution did not specifically address the question of conforming
amendments, including amendments to the intervening rights provisions of the patent law, the
broad approval of such conforming changes is inherent in the resolution. However, such broad
approval should not be construed as approval of the specific conforming changes set forth in
Section 9 of S.2368 and Sections 8 and 9 of Discussion Draft (2). A review of the
appropriateness of each of the specific conforming changes has not been made by the IPL
Section. The IPL Section therefore expresses no opinion with regard to them.

It is noted above that Sections 8 and 9 of Discussion Draft (2) both relate to adding offers
to sell and importation as infringing acts but each of these Sections has a different effective date.
Also, Section 10 of S.2368 repeats the change made by Section 9 of the same bill to §154 of the
patent law. Sections 9 and 10 of S.2368 also have different effective dates. Both bills are
confusing. This requires correction.

To Implement Article 6 and the note to Article 28 of the GATT Intellectual Property
Agreement, the statute should make clear that the new provisions concerning offers to sell and
importations are not intended to affect existing law on exhaustion of intellectual property rights
or the first sale doctrine.

Section 10 of S.2368 and Section 8 of Discussion Draft (2) also establish a domestic or
internal priority system. Under this system a provisional patent application may be filed with
a lesser fee and without claims, where the provisional application complies with the first

452

The Honorable Dennis DeConcini

September 15. 1994

Page?

paragraph of Section 1 12. The provisional application is not entitled to a right of priority of an
earlier application. Further, the provisional application is considered abandoned one year after
filing. However, a patent application filed within one year of the provisional application is
entitled to a right to the priority date of the filing date of the provisional application.

We support the provisions in these bills permitting the filing of provisional applications
with two exceptions. First, we do not support the requirement that provisional applications must
comply with the best mode requirement of Section 1 12. Since a provisional application would
normally be filed before the inventor really knows what mode is best for practicing the invention,
little information would be revealed which is useful to the public at this stage. Compliance with
the best mode requirement when the complete application is filed would serve the public interest
far better than compliance at the stage of development typical at the time a provisional application
would be filed. Further, without claims being required, the extent to which the best mode
requirement applies may be unclear to the inventor. We strongly recommend that the best mode
requirement in provisional applications be deleted.

Second, we also do not support the $150 fee for filing a provisional application to the
extent that it does not represent the marginal cost to the Patent and Trademark Office of
processing provisional applications. Fees collected by the Patent and Trademark Office already
exceed the cost of operating the Office.

Copies of the IPL Section resolutions supporting the filing of provisional applications
include 1993 R-SCH-Three-7A through 12A, copies of which are attached.

We do wish to point out that the transitional provisions in Section 1 1(b) could have a term
reducing impact upon some divisional and continuation applications based upon parent
applications pending on the effective date, even though the filing of such divisions or
continuations are required because of actions by the Patent and Trademark Office.

In conclusion, we generally support the provisions of S. 2368 and Discussion Draft (2) with
the qualifications and changes recommended.

Please let us know if there is anything we can do to assist you in the consideration of this
matter.

Sincerely,

Thomas E. Smith
TES:kk
Attachments

pc: Officers and Council

Mrs. Michele A. Bridges

453

ATTACHMENT

(Passed 1939 SP 22-ABA 1939)
Section approved in principle S.2688. 76th Congress, providing that patents shall expire within
twenty years from date of filing in the Patent Office, but in no event shall they have a longer life
than seventeen years from the date of grant.

(Passed 1942 SP 23-ABA 1942)
Section approves in principle S.892, providing that patents shall expire twenty years after filing
of^lbe earliest application disclosing the inventi'on, and providing that, in the discretion of the
Co'nu^ssioner of Patents, an additional period not exceeding two years may be added to
compensate for unavoidable delays ui the Patent Office.

(Passed 1966 SP 49-ABA 1967-Rl)
Section approves in principle legislation providing that a patent shall expire twenty years after
the filing of the earliest United Stales application disclosing the invention.

RESOLUTION I

RESOLVED, thai the Section of Patent. Trademark and Copyright Law
favors in principle granting to a patent owner an extended patent term when
the ability to commercially exploit a patented invention haj been delayed,
during the term and through no fault of the patent owner, by governmenitl
authonties. statutes or regulations.

(Passed 1980SP62-R101-3)
Section favors in pnnciple granting to a patent owner an extended patent term when the ability
to exploit commercially a patented invention has been delayed, during the term and through no
fault of the patent owner, by governmental authorities, sututes or regulations; and Specifically
the Section favors enactment of S 2892 (Bayh) 96th Congress, entitled The Patent Term
Restoration Act of 1980, or similar legislation.

. (Passed 1990 SP35-R102-5)
Section favors in principle that an international treaty or agreement contain a provision providing
that the patent term be at least 20 years from the earliest effective national filing date claimed.

(Passed 1991 AR93-R 108-4)
Section favors in principle legislation providing that all patents shall expire 20 years after filing
of the earliest U.S. application on which priority is relied, except for patent term extension
provisions of law and cases delayed by secrecy orders.

454

(Passed 1993 AR -R-SCH-Twenty-Two-IA)

Section favors in pnnciple the inclusion, in any intemabonal patent harmonizadon treaty, of a
provision substantially as set forth in Article 22 of WIPO Document PLT/DC/3/Dcc. 21. 1990
which provides that the starting date of the term of a patent shall be the filing date of the
application on which the patent is granted, whether or not the application claims priority of
another application, except that where a subsequent application invokes one or more earlier
applications without claiming priority of any of those earlier applications, the starting date of the
term of the patent granted on the subsequent application shall be the filing date of the earliest-
filed application invoked in the subsequent application.

(Passed 1993 AR -R-SCH-Twenty'Two-2A)

Section opposes the inclusion in any international patent harmonization treaty of a provisioa
which provides that the starting date of the term of a patent shall be the filing date of the
application on which the patent is granted, whether or not the application claims priority of
another application, except that where a subsequent application invokes one or more earlier
applications without claiming priority of any of the earlier applications the starting date of the
term of the patent granted on the subsequent application shall be the filing date of the earliest-
filed application invoked in the subsequent application, provided, however, that where the
subsequent application includes new matter, the starting date of the term of the patent granted
on the subsequent application shall be the filing date of the subsequent application.

(Passed 1993 AR -R-SCH-Twenty-Two-3A)

RESOLVED, that in the event the United States amends its patent laws to provide for a fixed
patent term measured from filing date, the Section favors in principle maintaining existing
provisions for patent term extension under 3S USC §156 for delays due to the Federal regulatory
approval process.

(Passed 1993 AR -R-SCH-Twenty-Two-4A)

Section favors the inclusion in any international patent harmonization treaty of a provision related
to term of patents.

(Passed 1993 AR -R-SCH-Tweoty-Two-5A)

Section favors in principle the inclusion in any international patent harmonization treaty, of a
provision providing that the term of a patent shall be at least 20 years.

RESOLVED, that the Intellectual Property Law Section favors. In principle, the
Implementation of the GATT TRIPs provision requiring a minimmti 20-year term from
fUlng date by adding a mmimum 20-year term from the earliest United States
application on which priority la relied, with appropriate extensions of this term as
permitted by the present statute, to the exlstltig 17-year term from grant, as an
Interim step until the United States patent laws are amended, to provide for pre-grant
provisional rights (103-4 1/94).

455

(Passed 1993 AR -R-SCH-Three-7A)

RESOLVED, that, panicularly if the United States entcre into an intemanonal patent
hannotuzation treaty including a requirement for a first-to-file system, the Section favors, in
pnnciple. adoption in U.S. law of a provision permitting an applicant to file a provisional patent
applicaDon at a cost as low as reasonably possible, which applicaoon shall, unless withdrawn,
be supplemented, within a fixed time period, not greater than one year, by an applicatioo
complying with most, if not all. of the requirements of the first paragraph of 35 U.S.C. jll2.

(Passed 1993 AR -R-SCH-Three-SA)

RESOLVED, that, if the United Sutes adopts a system permitting filing a provisional patent
application, the Section favors inclusion of a provision permitting the Commissioner of Patents
to set a filing fee as low as reasonably possible but sufficient to cover the marginal expenses of
the PTC in administering the provisional filing system.

(Passed 1993 AR -R-SCH-Three-9A)

RESOLVED, that, if the United States adopts a' system permitting filing of a provisional patent
application, the Section favors in principle permitting a provisional application to be filed without
claims.

(Passed 1993 AR -R-SCH-Three-lOA)

RESOLVED, that, if the United States adopts a system permitting filing a provisional patent
application, the Section favors in principle permitting filing of a provisional applicatioo witfaout
compliance with the "best OKxle' disclosure requirement of 35 U.S.C. §112 at least until the
complete application is filed.

(Passed 1 993 AR -R-SCH-Three- 11 A)

RESOLVED, that, particularly if the United Sutes adopts a system permitting filing a provisional
patent application, the Section favors in principle permitting filing of a provisional application
with a drawing or drawings that do not comply with PTO requii^ements for formal drawings of
a 'complete' application.

(Passed 1993 AR -R-SCH-Three- 1 2 A)

RESOLVED, that, if the United Sutes adopts a system permitting filing a provisional patent
application, the Section favors in principle permitting fiUng of a provisional application, and
according a filing date thereto, if the written description, when considered with any drawings
submitted and any claims originally submitted with that application, is sufficient to permit an
understanding, by those of ordinary skill in the pertinent arx, of the namre and operation of the
invention.

456

Appendix 12. — Letter From Eric C. Woglom, Chair, the Asso-
ciation OF THE Bar of the City of New York, Committee on
Patents (With Attachments), to Hon. William J. Hughes,
Chairman, August 9, 1994

THE ASSOCIATION OF THE BAR
OF THE CITY OF NEW YORK

42 WEST 44TH STREET
NEW YORK. NY 10036-6690

COMMITTEE ON PATENTS

ENC C. WOGLOM

CHAM

FORTY -NINTH FLOOR

1261 AVENUE OF THE AMERICAS

NEW YORK. NY 10020-1104

PHONE 12121 B96-9000

FAX 12121 69«-9090

DANB. M. OANTT

SECRETARY

FORTY -NMTH FLOOR

1261 AVENUE OF THE AMBUCAS

NEW YORK. NY 10020-1104

PHONE 12121 69«-9000

FAX 12121 696-9090

August 9, 1994

The Honorable William Hughes
Chair, Subcommittee on Intellectual

Property and Judicial Administration
United States House of Representatives
207 Cannon Building
Washington, D.C. 20515

GATT/TRIPS Implementing Legislation
Dear Congressman Hughes:

We have previously written to express our
opposition to H.R. 4505 in the form that it was introduced.
We understood that the stated purposes of this bill were to
bring the United States into compliance with GATT/TRIPS and
to deal with the problems caused by patents which issue long
after they are originally applied for — patents commonly
known as "submarine" patents.

We do not oppose compliance with GATT/TRIPS. This
treaty obligation can be satisfied by providing that the
term of a United States patent, now set at 17 years from
issue, be changed to 17 years from issue or 20 years from

457

filing whichever is longer. We opposed H.R. 4505 because it
would set the patent term at 20 years from filing with very
little accommodation for those patents whose issuance is
delayed through no fault of the applicant.

We believe that any legislation concerning the
United States' treaty obligations under GATT/TRIPS should be
confined now to discharging our obligations under the
treaty. The broader questions of patent law reform and
patent law harmonization are too important and complex to be
dealt with on a piecemeal basis. They deserve a full
hearing, unaffected by the time pressures imposed by our
need to comply promptly with our treaty obligations.

We do not disagree with the notion that submarine
patents represent a threat to the integrity of the patent
system — a threat that must be dealt with promptly. H.R.
4505 would deal with submarine patents, but would do so at a
cost — in terms of eroding the incentive to invent now
provided by the patent laws — which most of us believe may
be too high and unnecessary. We believe that there may be
ways of dealing with submarine patents less drastic than
effectively shortening the patent term of legitimate
applicants who encounter delays in the patent issuance
process through no fault of their own.

We believe that the issues presented by submarine
patents and patent terms measured from filing dates warrant
a full hearing. They should not be dealt with summarily as

458

part of legislation prompted by a treaty obligation that can
be discharged independently of these issues.

The Nature Of This Committee

We are one of seventy standing coininittees of The
Association of the Bar of the City of New York. Our
jurisdiction within the Association covers all matters
relating to patents.

The Association was formed 125 years ago. Its
membership now includes over 20,000 lawyers and judges. Its
goals encompass promoting reforms in the law and improving
the administration of justice. This committee is
responsible for furthering these goals in the field of
patents.

The Committee on Patents has thirty-five members
— all of whom have been appointed by the president of the
Association. The members bring to the committee a wide
range of backgrounds including corporate practice, private
practice, law school faculty and government service. The
experience of many of the individual members may be measured
in decades. Collectively, the experience of the committee
may be expressed in terms of centuries.

The Reasons Why We
Opposed H.R. 4505

We opposed H.R. 4 505 because it would have the
unintended secondary consequence of eroding the
encouragement for innovation now provided by the patent

459

system — the provision of which is the principal purpose of
the system:

• The patent system encourages innovation by
providing an incentive for those who are so
inclined to invest their time, money, talent and
energy in endeavors that may lead to inventions.
This incentive comes from the reward embodied in
the patents that are awarded to those who
successfully complete an invention. In tangible
terms, this reward is the right to exclude others
from exploiting the invention for the term of the
patent -- now set at 17 years from issue. 35
U.S.C. S 154.

• If Congress were to change the term of the
patent (the period of exclusivity) from 17 years
to some shorter period, it would follow
unavoidably that Congress would also be reducing
the reward for invention and, we believe, reducing
the incentive for innovation.

• Changing the patent term from 17 years
measured from issuance to 20 years measured from
filing would shorten the terms of many patents in
important fields of technology. Many delays —
both substantive and administrative — occur
between the time that a patent is applied for and
the time it issues through no fault of the patent
applicant. Such delays of five years or more may

460

occur when an application becomes involved in
interferences. Such delays occur when it is
necessary to seek relief in the appellate tribunal
of the Patent and Trademark Office or in the Court
system from improvidently issued rejections. Such
delays occur by virtue of Patent and Trademark
Office procedures such as "restriction
requirements" and "second office action final
rejections," Such delays occur when a
biotechnology application is rejected pending
time-consuming in vivo clinical studies said to be
necessary to establish utility under 35 U.S.C.
S 101. Such delays occur when an application is
assigned to an under-staffed examining group.
And, yes, such delays occur when files are
misplaced by administrative personnel.

Shortening the terms of patents will diminish the
incentive for innovation now provided by the patent laws.
This is not a step to be taken lightly — especially because
its impact will be felt in patent-intensive industries such
as biotechnology which contribute so favorably to the
nation's balance of trade.

A Caveat

In stating our position to you on the pending
bills, we wish to make clear that this committee is not
necessarily opposed to a patent term that runs 20 years (or

461

some other period) from filing rather than 17 years (or some
other period) from issue. We opposed H.R. 4505, because
changing the patent system from one whose terms are based on
issue dates to one whose terms are based on filing dates
requires careful consideration of all its consequences.
Neither the text of H.R. 4505 nor the public discussion of
it to date suggests that such full consideration has
occurred .

Conclusion

We urge your subcommittee to approve the
legislation necessary to bring the United States into
compliance with GATT/TRIPS. But we urge you to oppose any
attempt to broaden such legislation so as to tinker with the
patent laws in a manner not required by our treaty
obligations.

We urge you to call for prompt hearings on the
issues of submarine patents and of patent terms measured
from filing dates. In the meantime, compliance with
GATT/TRIPS can be dealt with separately in the manner
suggested above and without prejudice to an appropriate
resolution of these important issues.

Very truly yours.

ECW:dp ZMCC. Woglom

Chair

462

Committee on Patents
1993-1994

ABCNY

Beryl A. Abrams, Esq.
Associate General Counsel
Columbia University
Room 1 10

Low Memorial Library
West 1 16th St. & Broadway
New York. New York 10027

Tel. No. (212) 854-4523
Fax. No. (212) 222-7830

Eric S. Dicker, Esq.

Senior Director, Patents

Schering-Plough Corporation

One Giralda Farms

P.O. Box 1000

Madison, New Jersey 07940-1000

Tel. No. (201) 822-7383
Fax. No. (201) 822-7039

2. Alice C. Brennan, Esq.
Corporate Secretary
American Cyanamid Company
One Cyanamid Plaza
Wayne, New Jersey 07470

Tel. No. (201) 831-2686
Fax. No. (201) 831-4499

Professor Rochelle C. Dreyfuss

New York University

School of Law

40 Washington Square South

Room 423

New York. New York 10012

Tel. No. (212) 998-6258
Fax. No. (212) 995-3156

3. Michael A. Caputo, Esq.
Patent Counsel

Hoechst Celanese Corporation
86 Morris Avenue
Summit, New Jersey 07901

Tel. No. (908) 522-7824
Fax. No. (908) 522-7897

Ronald C. Fedus, Esq.

Patent Counsel

Enzo Biochera Inc.

60 Executive Boulevard

Farmingdale, New York 11735

Tel. No. (212) 856-0876
Fax. No. (212) 856-0878

Michael I. Chakansky, Esq.
Brown Raysman <& Millstein
120 West 45th Street
New York, New York 10036

Tel. No. (212) 827-4789
Fax. No. (212) 840-2429

9. Mavis K. Fowler. Esq.
Akoo-Toren
21st Floor
521 Fifth Avenue
New York, New York 10175

Tel. No. (212) 867-2912
Fax. No. (212)953-7249

5. John G. Costa, Esq.

Sutton, Basseches, Magidoff

Sl Amaral
Suite 2310

420 Lexington Avenue
New York, New York 10170

Tel. No. (212) 490-7900
Fax. No. (212) 370-5559

10. Diane E. Furman, Esq.
Senior Patent Attorney
Sandoz Corporation
59 Route 10
East Hanover, New Jersey 07936

Tel. No. (201) 503-7332
Fax. No. (201) 503-8807

463

II. Daniel M. Gantt. Esq. (SecreUry)
Fish Sl Neave

1 25 1 Avenue of the Americas
New York. New York 10020

Tel. No. (212) 596-9000
• Fax. No. (212) 596-9090

Michael W. Glynn, Esq.
Vice-President and

Chief Patent Counsel
Ciba-Geigy Corporation
7 Skyline Dnve
Hawthorne, New York 10532

Tel. No. (914) 785-7138
Fax. No. (914) 347-5769

17.

18.

Robert D. Katz, Esq.
Cooper & Dunham
30 Rockefeller Plaza
New York, New York

I0II2

Tel. No. (212) 977-9550

Fax. No. 664-0525 or 315-1931

Mollie M. Yang, Esq.

Patent Department

Merck & Co.

P.O. Box 2000

Rah way, New Jersey 07065

Tel. No. (908) 594-6343
Fax. No. (908) 594-4720

13. Beverly B. Goodwin, Esq.
Darby & Darby
805 Third Avenue
New York, New York 10022-7513

Tel. No. (212)527-7700
Fax. No. (212) 370-0973

19. Wayne M. Kennard, Esq.
Hale and Dorr
60 State Street
Boston. Massachusetts 02109

Tel. No. (617) 526-6183
Fax. No. (617) 526-5000

14. Philip M. Hahn, Esq.

Assistant General Counsel

Pfizer Inc.

235 East 42nd Street

New York, New York 10017

Tel. No. (212) 573-7854
Fax. No. (212) 573-3977

IS. Richard S. Gresalfi, Esq.
Kenyon & Kenyon
One Broadway
New York, New York 10004

Tel. No. (212) 425-7200
Fax. No. (212) 425-5288

16. William J. Hone, Esq.
Davis Hoxie Faithfull

& Hapgood
45 Rockefeller Plaza
New York, New York 101 1 1

Tel. No. (212) 757-2200
Fax. No. (212) 586-1461

20. John R. Lane, Esq.

Curtis, Moms Sl Safford

530 Fifth Avenue

New York, New York 10036

Tel. No. (212) 840-3333
Fax. No. (212) 840-0712

21. Hope Liebke, Esq.
Pennie & Edmonds
1 155 Avenue of the Americas
New York. New York 10036

Tel. No. (212) 790-9090

Fax. No. (212) 869-8864 or 869-9741

22. Maria C.H. Lin, Esq.
Morgan & Finnegan
345 Park Avenue
New York. New York 10154

Tel. No. (212) 758-4800
Fax. No. (212) 751-6849

464

23. Jerome E. Luecke, Esq.
General Counsel

Exxon Research & Engineering Co,
P.O. Box 390
Florham Park, New Jersey 07932

Tel. No. (201) 765-2321
Fax. No. (201) 765-2529

28. Stephen B. Shear, Esq.
Chief Patent Counsel
Nabisco, Inc.
7 Campus Drive
P.O. Box 311
Parsippany, New Jersey 07054-0311

Tel. No. (201) 682-6160
Fax. No. (201) 682 6103

24. David C. Plache, Esq.
Fried, Frank, Harris,
Shnver & Jacobson
One New York Plaza
New York, New York

10004

Tel. No. (212) 820-8000
Fax. No. (212) 820-8585

29. David E. Sipiora, Esq.
U.S. Attorney's Office
100 Church Street
New York, New York 10007

Tel. No. (212) 385-6347
Fax. No. (212) 385-6252

25. Pasquale A. Razzano, Esq.
Fitzpatrick, Cella, Harper

<& Scinto
277 Park Avenue
New York, New York 10172

Tel. No. (212) 758-2400
Fax. No. (212) 758-2982

30. Henry Y.S. Tang, Esq.

Brumbaugh, Graves, Donohue

& Raymond
30 Rockefeller Plaza
New York, New York 10112

Tel. No. (212)408-2500
Fax. No. (212) 765-2519

26. Gerard P. Rooney, Esq.

Finnegan, Henderson, Farabow
Garrett & Dunner
Suite 700

1300 1 Street, N.W.
Washington, D.C. 20005

Tel. No. (202) 408-4000
Fax. No. (202) 408-1400

31. William H. Voth, Esq.
Arnold &. Porter
399 Park Avenue
New York, New York 10022-4690

Tel. No. (212) 715-1000
Fax. No. (212)715-1399

27. Otho B. Ross 111, Esq.

Staff Attorney - Intellectual Property

Law and Licensing Services
IBM Corporation
Room 4B-35
208 Harbor Drive
SUmford, Connecticut 06904

Tel. No. (203) 973-7365
Fax. No. (203) 973-7981

32. Newton B. White, Jr., Esq.

Cleary Gottlieb Steen & Hamilton

One Liberty Plaza

New York, New York 10006

Tel. No. (212) 225-2000
Fax. No. (212) 225-3999

465

33. Eric C. Woglom, Esq. (Chair)
Fish & Neave

1251 Avenue of the Americas
New York, New York 10020

Tel. No. (212) 596-9000
Fax. No. (212) 596-9090

34. Steve T. Zelson, Esq.

Director of Intellectual Property

and Chief Patent Counsel - U.S.
Nova Nordisk of North America
Suite 6200

405 Lexington Avenue
New York. New York 10017

Tel. No. (212) 867-0123
Fax. No. (212) 867-0298

35. Bernard Zucker, Esq.
Senior Attorney
American Telephone and

Telegraph Company
131 Morristown Road
Basking Ridge, New Jersey 07920-1650

Tel. No. (908) 204-8516
Fax. No. (908) 204-8565

August 9, 1994

466

Appendix 13.— Letter From Charles E. Ludlam, Vice Presi-
dent FOR Government Relations and Carl B. Feldbaum,
President, Biotechnology Industry Organization (BIO), Au-
gust 12, 1994

BIOTECHNOLOGY

INDUSTRY

ORGANIZATION

August 12, 1994

BoARii OF Directors
Executive Committee

Chairman
G.KirklUab

Onenmh. Iiu

Vk:e Chaikman

Food and Ar,Rit:m.TVR£

Simon C. BeM

Zmea PUw Scictxf

Vice Chairman
Health Care
H<fnn A-Termeer

Ccnxvme Cocpoooon

Secretary
David E Hale

GrtllU.lM

TR£AiUR£R
Mitchel Sayaic
ImmunoCcti. Inc-

MEMBERi AT LARGE

Forrest H. Ajithony

AVlDT>i«ap«joo Inc.

George W. Masten

Sengnv Inc

Emerging Companies
Section

Chairman
Robcn J- Becknun

Vice Chair

Aluon Taunton-Rogby

The Honorable Bruce A. Lehman
Assistant Secretary of Commerce

and Commissioner of Patents

and Trademarks
Washington, D.C. 20231

Dear Bruce:

BIO, a trade association representing over 540 firms in biotechnology,
strongly supports the GATT Agreement. We welcome the improved trade regime
and lower tariffs. We also support the improved intellectual property protection
offered by the TRIPS Agreement. We are writing to express our views on the
legislation and administrative action to implement this Agreement.

As an industry we have benefitted from strong and stable patent protection
in the United States. Thus, we have expressed trepidation about changes in the
length and calculation of patent term contained in the GATT implementing bill.
Specifically, we have been concerned that by moving from a 17 year patent term
from issuance to a 20 year term from filing, rather than simply guaranteeing a
minimum of 20 years from filing, we could see an erosion of patent term for
biotechnology inventions. This concern arises from perceived delays in the
prosecution of ex parte claims in the Patent and Trademark Office, delays from
interferences and appeals, and unduly harsh transition provisions. For this reason
we have supported a patent term which starts from the first filing date of a patent
application but is no less than seventeen years from the date the patent issues.

We applaud and welcome the commitment of the Administration to address
some of these concerns. We undentand that the Administration is committed to
ensuring the speedy and fair processing of biotechnology derived applications and
ensuring that this legislation will not, in fact, erode the patent terms of these
industries. This commitment has been or will be made concrete in the following
ways: (1) support for legislation (H.R. 4307) to clarify the law in the area of
process patent protection; (2) provision of adequate resources in the examining
corps for biotechnology; (3) transmittal of clear instructions to the examiners on
the legal question of utility in the area of requiring clinical trials for certain
categories of diseases; and (4) review of delays in prosecution, appeals, or

1625 K <-n<£ET. N W . SUTE 1 ll»)
WASHINGTON. DC :i"*>-1604

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FA.X 202^7 Ji2J"

467

interferences to assist in avoiding problems and delays.

In addition, we understand that the Administration is committed to including in the
GATT implementing legislation provisions that provide patent applicants with extensions of
patent term when they have experienced delays due to interferences and for appeals to the
CAFC. We appreciate the inclusion of these provision. We have sought as desirable and
support further ameliorative changes in this area offered by Congress or the Administration
relating to extensions for appeals to the Board of Patent Appeals and Ii;terferences, to
transition provisions which permit current patent term rules to apply to all continuation and
divisional applications regardless of when they are filed which make specific reference to an
application filed prior to the effective date of the legislation, and to expansion of the
maximum permissible term of any extension. With regard to extensions we note that patent
term extensions for r^ulatory delay in the European Community are measured from the
commencement of the 20 year term, not the date of grant.

We look forward to working with you to review the implementation of the legislation
to ensure that it does not cause any unintended erosion of our industry's patent terms. We
want to work with you on additional measures, including legislation, if they are necessary to
address any problems which may arise with respect to the patent term issue in the future.
We will also work with you and the Administration to achieve the goals of comprehensive,
balanced international patent harmonization, to support the Biotechnology Patent Institute,
and to participate in other cooperative efforts to enhance the value of intellectual property.

We are impressed with the leadership you are providing and your understanding of
the importance of the biotechnology industry to the competitiveness of the United States and
to patients, farmers, and consumers who want and need our inventions. We look forward to
facilitating and participating in a long-term, constructive dialogue with you on a wide range
of issues and programs.

Thank you again for your support of the American biotechnology industry and your
actions with respect to our concerns.

Sincerely,

hJ^^^UjL^

Charles E. Ludlam Carl B. Feldbaum

Vice President for President

Government Relations

468

Appendix 14.— Letter From Tom Cannon, President,
SuPERVEND, Inc., to Jarilyn Dupont, Counsel, Subcommittee
on Intellectual Property and Judicial Administration, Un-
dated

SUPERVEND, INC. 14B E. 2»th StrMt, Lov«land 00 80538 Phon* 303-663-2173 Fax: 303-663-7148

Ms Jerilyn Dupont, Counsel

House Subconunittee on Intellectual Propert)- and Judicial Admmistratioa ^

207 Cannon Office Building

Washington, DC. 20315

Dear Ms Dupont

I understand hearings will be held on the "twenty year from filing date patent term" this Friday by the House
Subcommittee on intellectual Propeity and Judicial Administration 1 understand the decision to hold these hearings
was made last Thursday WhUe l applaud the fact that the hearings are bemg held, the notice provided was certainly
not adequate for an issue of this importance and provides no opportuiut^' for someone like myself, who will be
directly affected to express our concern smcc only one person, who is not a "professional" inventor, is being allowed
to testify on behalf of ^ entire community of U.S. inveniors

I am a successful professional inventor-entrepreneur and I strongly oppose the proposed change to a twenty year
from fil'ng date term on patents Thi$ change is not a mere hou5ekeepuig mallei ll nrny nol imptu;! niusl puicula
which arc issued, but it could severely impact those few patents which have great commercial value I hold more
than fifteen patents and have four patent ^iplicanoos pending A number of my patented mventions have proven to
be very valuable, mcludmg patents number 4,1158,047 and 4,943,877 wtiich played a significant role m making
Colorado Memory Systems of Ixiveland, Colorado the world's dominate manu&cturer of tape backup systems for
personal computers. Further, my patent number 5,056,029 on a "Method and Apparatus for Manutactunng and
Vending Social Expression Cards" which was issued October 8. 1991 is the basis for a successful new method of
distributing gnxting cards Kiosks owned by American Greetings Corporation based on this patent sold $35,000,000
worth of greeting cards m their first year of operation and Amencan Greetings projects worldwide sales by this
means to exceed $500,000,000 by the year 2000. Also, one of my pending patent ^plications has played a
SlgniAcant role in aiding Combytc, Inc. of Fort Collins, Colorado to raise more dian three milhon dollars in venture
capital dunng the past year

While my flour pending patent applications will not be affected by the proposed change, applications I intend to file in
the future could be The potential for haiTn can be iUustraiisd by what has happened to one of my pending
appiicatlORS which was filed almost two years ago Prosecution of this patent application was suspended mdefinitcly
by the U.S. Patent and Trademark Office because it was judged to cover subject matter sunilar to another patent
v^ch is the subject of an interference action The suspension of prosecution will contmuc until the interference is
resolved. This particular mterftrcnce action started in 1992 and could connnue tor another tive to seven years! If
the proposed twenty year from fihng date patent teim were in effect, the effective hfe of any patent 1 might receive
could be reduced to twelve years or less The potential commercial value of my application is significant, yet this
value would be greatly impacted by the unfairly shortened term life imposed it a twenty year patent term starting at
the tune tbe application was filed were in effect.

The proposed change is unnecessary, inappropriate, and could deprive U S firms and inventors of deserved patent
protection Significant changes, such as those proposed should be considered on their own ment in separalc
legislation and not as pan of GATT, I respecttully request that you bnng these concerns to the attention of the
HoUK Subcommitte on Friday in behalf of myself and other inventors who have made significant mvenuvc
cfflitributioos to the US and believe tbe present first to invent with a seventeen year patent term should be preserved

Cordially,

TomCannoo
President

85-525 (480)

BOSTON PUBLIC LIBRARY

3 9999 05983 066 9

ISBN 0-16-046931-7

780160

469312"

0000

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